Hawaiian Specialty Foods purchased equipment for $30,000. Residual value at the end of an estimated four-year service life is expected to be $3,000. The machine operated for 3,100 hours in the first year, and the company expects the machine to operate for a total of 20,000 hours. Calculate depreciation expense for the first year using each of the following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3) activity-based

Intructions are listed below.

Explanation:

Giving the following information:

Hawaiian Specialty Foods purchased equipment for $30,000.

Residual value = $3,000.

The machine operated for 3,100 hours in the first year, and the company expects the machine to operate for a total of 20,000 hours.

1) Straight-line:

Annual depreciation = (original cost - salvage value) / estimated life (years)

Annual depreciation = (30,000 - 3,000) / 4 = $6,750

2) Double-declining balance:

Annual depreciation = 2*[ (book value) / estimated life (years) ]

Annual depreciation = 2 * [ (30,000 - 3,000) / 4] = $13,500

3) Activity-based:

Annual depreciation = [ (original cost - salvage value) / useful life of production in hours]*hours used

Annual depreciation = (27,000 / 20,000) * 3,100

Annual depreciation = $4,185