Question

A machine that cost $100,000 has an estimated residual value of $10,000 and an estimated useful life of 10,000 machine hours. The company uses units-of-production depreciation and ran the machine 1,000 hours in year 1, 2,000 hours in year 2, and 4,000 hours in year 3. Calculate its book value at the end of year 3.

Answer 1

Book value year 3= $27,000

Step-by-step explanation:

Giving the following information:

A machine that costs $100,000 has an estimated residual value of $10,000 and an estimated useful life of 10,000 machine hours.

Hours:

Year 1= 1,000 hours

Year 2= 2,000 hours

Year 3= 4,000 hours

Using the units of production method, we need to use the following formula on each year:

Annual depreciation= [(original cost - salvage value)/useful life of production in hours]*hours operated

Year 1= [(100,000 - 10,000)/10,000]*1,000= 9,000

Year 2= 9*2,000= $18,000

Year 3= 9*4,000= $36,000

Book value year 3= 90,000 - 63,000= $27,000

Answer 2

$37,000

Step-by-step explanation:

Depreciation expense = Depreciation factor x total machine hour per year

Depreciation factor = (Cost of asset - residual value ) / useful life

($100,000 - $10,000) / 10,000 = $9

Depreciation expense in year 1 = $9 × 1000 = $9000

Deprecation expense in year 2 = $9 × 2000 = $18,000

Deprecation expense in year 3 = $9 x 4000 = $36,000

Total depreciation expense = $36,000 + $18,000 + $9,000 = $63,000

Net book value = $100,000 - $63,000 = $37,000

I hope my answer helps you