Q) On January 1, 2009, Rugh Company purchased equipment with a list price of $12,000 with a 2% cash discount. The equipment was delivered under terms of FOB destination and freight costs amounted to $400. A total of $1,000 was paid for installation and testing. During the first year, Rugh paid $300 for insurance on the equipment and another $250 for routine maintenance and repairs. Rugh uses the units-of-production method of depreciation. Useful life is estimated at 5 years or 300,000 units and estimated salvage value is $2000. During 2009, the equipment produced 60,000 units. What is the amount of depreciation for 2009?

A. $2,152
B. $2,352
C. $2,552
D. $2,632


I'm getting $2,232 as answers, but its not in the answer options. Can some one help

rehmanvohra

I think your answer is correct:
List price $12,000
Discount (240)
Freight 400
Installation 1,000
Total cost 13,160
Salvage value 2,000
Depreciable cost 11,160
Depreciation 11,160 x 60,000/300,000 = $2,232

It is confirmed that the production is 20% of the total capacity - 60,000/300,000

Now if we just multiply the option answers by 5, we get depreciable cost as:

A. $2,152 x 5 = $10,160 - Ignores installation and salvage value
B. $2,352 x 5 = $11,760 - This is net cash price only
C. $2,552 x 5 = $12,760 - ignores freight and salvage value
D. $2,632 x 5 = $13,160 - ignores salvage value

morgaine300

I have to agree with this. I'm getting 2232 as well, and that was before looking at what anyone else got.