Question

On January 1, Year 1, the Starshina Company paid $25,000 for a photocopier. The company estimates that the photocopies will produce 1,000,000 copies and will have an estimated residual value of $5,000. The company used to photocopier to make 220,000 copies during Year 1. The company uses the units-of-production method. What is the amount of depreciation expense for Year 1?

Answer 1

Answer:

The amount of depreciation expense for Year 1 is $4,400

Explanation:

The Starshina Company uses the units-of-production depreciation method to calculate depreciation expense by the following formula:

Depreciation Expense = [(Cost of asset − Residual Value )/ Life in Number of Units]x Number of Units Produced = Depreciation Expense per unit x Number of Units Produced

Depreciation Expense per coppy = ($25,000-$5,000)/1,000,000 = $0.02

During Year 1, the company used to photocopier to make 220,000 copies,

Depreciation expense for Year 1 = Depreciation expense per coppy x 220,000 = $0.02 x 220,000 = $4,400