Quality Producers acquired factory equipment on 1 January 20X5, costing $156,000. Component parts are not significant and need not be recognized and depreciated separately. In view of pending technological developments, it is estimated that the machine will have a resale value upon disposal in four years of $32,000 and that disposal costs will be $2,000. The company has a fiscal year end that ends on 31 December. Data relating to the equipment follow:

Estimated service life:

Years...............................................            4

Service-hours ...............................    20,000

Actual operation data:

Calendar Year                            Service Hours

20X5 ...............................................     5,700

20X6 ...............................................     5,000

20X7 ...............................................     4,800

20X8 ...............................................     4,400

Required:

Round to the nearest dollar, and show computations.

1. Prepare a depreciation schedule for the asset that shows depreciation expense, accumulated depreciation, and net book value, using:

a. Straight line depreciation.

b. Declining balance depreciation, using a 40% rate.

c. Service hours depreciation.

2. Express straight line depreciation as a percentage of original cost.

3. Explain whether:

a. The rate of 40% was a good choice for declining balance depreciation.

b. The 20,000 estimate of total service hours was accurate.