Treadmill Repair Masters purchased equipment for $34,000 on January 1, 2010. The equipment had an estimated useful

Question:

Treadmill Repair Masters purchased equipment for $34,000 on January 1, 2010. The equipment had an estimated useful life of five years or 400,000 units of production. Treadmill Repair Masters estimated the equipment’s salvage value to be $2,000. The equipment was used to produce 80,000 units in the year ended December 31, 2010, and 97,500 units in the year ended December 31, 2011.

1. Compute the depreciation expense for 2010 and 2011, first using the straight-line method, then the activity method.

2. Which method portrays more accurately the actual use of this asset? Explain your answer.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...