Question

On January​ 1, 2018, McHenry Manufacturing Corporation purchased a machine for $ 40 600 000. ​McHenry's management expects to use the machine for 27 000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $ 50 000. The machine was used for 3 600 hours in 2018 and 5 comma 700 hours in 2019. Calculate the book value of the machine at the end of 2019 if the company uses the unitsminusofminusproduction method of depreciation.​ (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest​ dollar.)

Answer 1

The book value of the machine at the end of 2019 is $26632795

Step-by-step explanation:

Unit of Production method:

In this method, the depreciation is calculated based on unit levels like machine hours, direct material,etc instead of useful life.

First we have to calculate annual depreciation based on machine hour. The formula is shown below:

= ( Purchase cost - Residual value ) ÷ machine hours

= ($ 40,600,000 - $50,000) ÷ 27000

= $1501.85

Then, compute the depreciation for 2018 and 2019

Depreciation for 2018 = Annual depreciation × 2018 machine hours

= $1501.85 × 3,600 hours

= $5406660

Depreciation for 2019 = Annual depreciation × 2019 machine hours

= $1501.85 × 5,700 hours

= $8560545

Now, finally the book value can be calculated for 2019 year.

= Purchase cost - depreciation 2018 - depreciation 2019

= $ 40,600,000 - $5406660 - $8560545

= $26632795

Thus, the book value of the machine at the end of 2019 is $26632795