Question

Fields Company purchased equipment on January 1 for $180,000. This system has a useful life of 8 years and a salvage value of $20,000. The company estimates that the equipment will produce 40,000 units over its 8-year useful life. Actual units produced are: Year 1 – 4,000 units; Year 2 – 6,000 units; Year 3 – 8,000 units; Year 4 – 5,000 units; Year 5 – 4,000 units; Year 6 – 5,000 units; Year 7 – 7,000 units; Year 8 – 3,000 units. What would be the depreciation expense for the second year of its useful life using the units-of-production method?A) 20,000 B) 16,000 C) 24,000 D) 45,000 D) 33,750

Answer 1

Answer: C-$24,000

Explanation:The units of production method is a method of depreciation where depreciation expense allocated in a year corresponds to the actual use of the asset.

Units of production method = [(Original cost of the machine - salvage value)÷ estimated productive capacity of the machinery] × actual units produced.

The cost of the equipment- $180,000

Salvage value = $ 20,000

Estimated productive capacity- 40,000

Actual production in year 2 - 6000 units

Depreciation expense in year 2 = ( 180000 - 20,000) ÷ 40,000 = $ 4

4 × 6000= $24,000