Mountain View Resorts purchased equipment at the beginning of 2021 for $40,000. Residual value at the end of an estimated four-year service life is expected to be $8,000. The machine operated for 2,200 hours in the first year and the company expects the machine to operate for a total of 10,000 hours over its four-year life. Calculate depreciation expense for 2021, using each of the following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3) activity-based.
What will be an ideal response?
(1) ($40,000 - $8,000)/4 = $8,000.
(2) $40,000 × 2/4 = $20,000.
(3) ($40,000 - $8,000)/10,000 hours = $3.20 per hour × 2,200 hours = $7,040.
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