On June 1, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of three years and 30,000 hours, which ends on December 31.Using straight-line depreciation, calculate depreciation expense for the final (partial) year of service.

A) $17,500
B) $30,000
C) $12,500
D) $40,000

Question

Katelynn Hammett · Accepted Answer

Final Answer : C, Explanation :  To calculate the depreciation expense for the final (partial) year, we need to determine the remaining useful life of the equipment. As the equipment was purchased on June 1, it was in service for 214 days (from June 1 to December 31) in the year of purchase.To calculate the remaining useful life in hours, we can use the formula:Remaining useful life (in hours) = (3 years x 8,760 hours per year) - 214 days x 24 hours per dayRemaining useful life = 24,846 hoursThe depreciation expense for the final (partial) year can be calculated as:Depreciation expense = (Depreciable cost / Estimated useful life in hours) x Remaining useful life in hoursDepreciation expense = ($90,000 / 30,000 hours) x 24,846 hoursDepreciation expense = $74,538However, as the question asks for the depreciation expense for the final (partial) year only, we need to prorate this amount based on the number of days the equipment was in service in the final year. The final year ran from January 1 to December 31, which is 365 days total. So, the equipment was in service for 151 days (from January 1 to June 1) in the final year.Prorated depreciation expense = Depreciation expense x (Days in service in final year / Total days in final year)Prorated depreciation expense = $74,538 x (151 days / 365 days)Prorated depreciation expense = $30,918.96Therefore, the answer is C) $12,500

Definitions

Learning Objectives

Learning Objectives

Related questions