I need small explanations calculations E7-43 (Learning Objective 2: Computing un
ID: 2599664 • Letter: I
Question
I need small explanations calculations
E7-43 (Learning Objective 2: Computing units-of-production depreciation) Buff Gym purchased exercise equipment at a cost of $107,000. In addition, Buff paid $3,000 for a special platform on which to stabilize the equipment for use. Freight costs of $1,600 to ship the equipment were borne by the seller. Buff will depreciate the equipment by the units-of- production method, based on an expected useful life of 55,000 hours of exercise. The estimated residual value of the equipment is $11,000. How many hours did Buff Gym use the machine if depreciation expense is $4,320?Explanation / Answer
Calculation of Hours used by Buff gym as per units of production method
Calculation of cost of equipment
Freight expenses will not be included since these are incurred by seller and not by buyer of asset
Calculation of hours used
Depreciation = (Hours used for period/Total expected useful life in hours)*Depreciable value of equipment
Here, Depreciation = $4320
Total Expected life in hours of asset = 55000 Hours
Depreciable value of equipment = (Cost - Salvage value) = ($110000 - $11000) = $99000
Total Hours used during the year or for the period = Let 'x' To be calculated
Calculation-
$4320 = (x/55000)*$99000
$4320 = 1.8x
x = $4320/1.8 = 2400 Hours
Particulars Amount Cost of asset $107000 Other incidental cost incurred to stabilize the equipment $3000 Total Cost of asset $110000