Acme paid 120000 for a machine with a 10000 salvage value an

Acme paid $120,000 for a machine with a $10,000 salvage value and an estimated life of 200,000 hours. Acme reports on a calendar year basis and used the machine for 1800 hours during the first year it owned the asset. Which of the following statements accurately compare the first year depreciation expense if the asset had been purchased on January 1 of the current year versus a March 1 acquisition date. (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A. In both cases, the Depreciation Expense is $990.

B. Depreciation Expense if acquired January 1 is $1080 and if acquired March 1 is $900.

C. Depreciation Expense if acquired January 1 is $990 and if acquired March 1 is $825.

D. Depreciation Expense if acquired January 1 is $990 and if acquired March 1 is $743.

Solution

If company uses unit of hours method :

Depreciation per hour = Original cost-salvage value/total hours

= 120000-10000/200000

Depreciation per hour = 0.55 per hour

in first year 1800 hour used so depreciation is = 1800*.55 = 990

its relevant that date of assets purchased

so answer is A) In both cases, the Depreciation Expense is $990.