Ehrlich Company purchased a new machine on January1, 2022, at a cost of $145,000. The company estimated that the machine will have a salvage value of $25,000. The machine is expected to be used for 20,000 working hours during its 5-year life. Instructions Compute the depreciation expense under the following methods for the year indicated. (a) Straight-line for 2022 and 2023. (b) Units-of-activity for 2022, assuming machine usage was 5,400 hours. (c) Prepare the journal entry to record depreciation expense for 2022 using each method
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Ehrlich Company purchased a new machine on January1, 2022, at a cost of
$145,000. The company estimated that the machine will have a salvage value of $25,000.
The machine is expected to be used for 20,000 working hours during its 5-year life.
Instructions
Compute the
(a) Straight-line for 2022 and 2023.
(b) Units-of-activity for 2022, assuming machine usage was 5,400 hours.
(c) Prepare the
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