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?Select one:A. $16,000.B. $24,000.C. $45,000.D. $33,750.E. $20,000.

Answer 1

B. $24,000.

Step-by-step explanation:

The computation of the depreciation per units under the units-of-production method is shown below:

= (Original cost - residual value) ÷ (estimated production units)

= ($180,000 - $20,000) ÷ (40,000 units)

= ($160,000) ÷ (40,000 units)

= $4 per unit

Now for the second year, it would be

= Production units in second year × depreciation per unit

= 6,000 units × $4

= $24,000