Answer :
Final answer:
To calculate the first year depreciation expense using the units-of-activity method, subtract the residual value from the cost to get the depreciable base, divide by total estimated hours to find the depreciation per hour, then multiply by hours used in the first year. Without exact hours, we assume equal annual use leading to an approximated expense of $15,946.94. The closest given option is A) $16,147.
Explanation:
To calculate depreciation expense for the first year using the units-of-activity method, we first need to compute the total amount of depreciation that the machine will experience over its useful life. This is done by subtracting the residual value from the cost of the machine. The calculation is:
Depreciable Base = Cost - Residual Value
Depreciable Base = $68,590 - $4,839
Depreciable Base = $63,751
Next, we figure out the depreciation per hour by dividing the total depreciable base by the total number of estimated hours the machine is expected to be used:
Depreciation per Hour = Depreciable Base / Total Estimated Hours
Depreciation per Hour = $63,751 / 19,585 hours
Depreciation per Hour = $3.256
Finally, to determine the first year depreciation expense, we multiply the depreciation per hour by the number of hours used in the first year. Without information on actual hours used, we cannot provide a specific answer. However, if the machine were to be used for the full estimated hours evenly over four years, then:
Hours Used in First Year = Total Estimated Hours / Life of Machine
Hours Used in First Year = 19,585 hours / 4 years
Hours Used in First Year = 4,896.25 hours
First Year Depreciation Expense = Depreciation per Hour * Hours Used in First Year
First Year Depreciation Expense = $3.256 * 4,896.25 hours
First Year Depreciation Expense = $15,946.94
Therefore, the closest answer to the provided options is A) $16,147.
