Question

Hahnny Company purchased a machine for $200,000 in cash on January 1 of Year 1. The machine has an estimated salvage value of $40,000. It is expected that the machine will be used for 20,000 hours during its useful life. During the first four years of use, the machine usage was as follows: Year 1, 2,500 hours; Year 2, 3,000 hours; Year 3, 4,000 hours; Year 4, 5,000 hours. Hahnny Company uses the units-of-production method for computing depreciation expense. What is the BOOK VALUE of the machine as of the END of Year 4?

Answer 1

$84,000

Step-by-step explanation:

Cost = $200,000

Residual value = $40,000

Expected hours = 20,000

Working hours (year 1) = 2,500 hours

Working hours (year 2) = 3,000 hours

Working hours (year 3) = 4,000 hours

Working hours (year 4) = 5,000 hours

Now,

Depreciation per hour =
`(Cost-Residual Value)/(Expected hours)`

Depreciation per hour =
`(200,000 - 40,000)/(20,000)`

Depreciation per hour =
`(160,000)/(20,000)`

Depreciation per hour = $8

Depreciation exper for each year can be calculated using the units-of-production method. Under this method, depreciation expense per hours is multiplied with the hours used during each year.

Depreciation schedule for the machine has been constructed and attached below: