Question

A factory machine was purchased for $70,000 on January 1. It was estimated that it would have a $14,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the five years. If the actual number of machine hours ran in the first year was 4,000 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for year 1 would be

Answer 1

$5600

Step-by-step explanation:

The amount of depreciation expense for year 1

depreciation under the first year under units of activity method

[ (cost - salvage value) / estimated machine hours ] * actual machine hours worked in the first year

= [(70000 - 14000) / 40000 ] * 4000

= 56000 / 40000 ) * 4000

= 1.4 * 4000 = $5600 ( amount of depreciation expense for year 1 )