Hohnberger Enterprises purchased equipment on March 15, 2012, for $75,000. The company also paid the following amounts: $1,000 for delivery charges; $200 for insurance while the equipment was in transit; $1,800 for a one-year insurance policy; $2,100 to train employees to use the new equipment; and $2,800 for testing and installation. The equipment was ready for use on April 1, 2012, but the company did not start using it until May 1, 2012.
Hohnberger has estimated the equipment will have a 10-year useful life with no residual value. It expects to consume the equipment’s future economic benefits evenly over the useful life. The company has a December 31 year end.
Instructions
(a) Calculate the cost of the equipment.
(b) When should the company begin depreciating the equipment: March 15, April 1, or May 1? Why?
(c) Which depreciation method should the company use? Why?
(d) Using the method chosen in (c), calculate the depreciation on the equipment for 2012.
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