Bixby Corporation purchased a forklift for $40,000 on July 1. The forklift has an estimateduseful life of 20,000 usage hours with a residual value of $8,000. Bixby uses the units-ofproduction method for depreciation. If Bixby uses the forklift for 6,400 hours during thefirst year, the depreciation expense on the forklift would bea. $8,000.b. $10,240.c. $12,800.d. $40,000.
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.
Bixby Corporation purchased a forklift for $40,000 on July 1. The forklift has an estimated
useful life of 20,000 usage hours with a residual value of $8,000. Bixby uses the units-ofproduction method for
first year, the depreciation expense on the forklift would be
a. $8,000.
b. $10,240.
c. $12,800.
d. $40,000.
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