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Answer :
The depreciation expense for the first year using the activity-based method is $3,904. The depreciation expense for the second year using the activity-based method is $4,270.
First year
Depreciation Expense (Dr) 3,904
Accumulated Depreciation (Cr) 3,904
Second year
Depreciation Expense (Dr) 4,270
Accumulated Depreciation (Cr) 4,270
The activity-based depreciation method calculates depreciation expense based on the usage of an asset. In this case, the asset is a machine that is expected to operate for a total of 23,000 hours. In the first year, the machine operated for 3,200 hours, so the depreciation expense for the first year is $3,904. In the second year, the machine operated for 3,500 hours, so the depreciation expense for the second year is $4,270.
The following formula is used to calculate the depreciation expense using the activity-based method:
Depreciation expense = (Cost of asset - Residual value) * (Hours used / Total hours)
In this case, the cost of the asset is $33,000, the residual value is $4,940, and the total hours of usage is 23,000 hours. Therefore, the depreciation expense for the first year is calculated as follows:
Depreciation expense = (33,000 - 4,940) * (3,200 / 23,000) = $3,904
The depreciation expense for the second year is calculated in the same way. The only difference is that the hours of usage for the second year is 3,500 hours. Therefore, the depreciation expense for the second year is calculated as follows:
Depreciation expense = (33,000 - 4,940) * (3,500 / 23,000) = $4,270
The depreciation expense for the first year using the activity-based method is $3,904. The depreciation expense for the second year using the activity-based method is $4,270.
Journal entries
The following journal entries are required to record the depreciation expense for the first two years using the activity-based method:
First year
Depreciation Expense (Dr) 3,904
Accumulated Depreciation (Cr) 3,904
Second year
Depreciation Expense (Dr) 4,270
Accumulated Depreciation (Cr) 4,270
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