Question

Given the data below for production equipment,Initial Cost, P = $50,000 Salvage Value at the end of 5 years, S = $10,000. Depreciable Life. N = 5 Years Year Projected Production units Actual Production units 1 4,500 5,0002 5,000 4,000 3 3,500 3,0004 5,500 5,000 5 6,500 Not knownTotal 25,0001. Determine the depreciation in year 4 using the UOP method. A. $5, 600.B. $8,000.C. $4,000.D. $3, 200. 2. If the equipment is sold at the end of year 4 for $30,000, what is the depreciation recapture on this equipment?A. $8, 400.B. $5, 600.C. $7, 200.D. $4,000.

Answer 1

1. B. $8,000

2. C. $7,200

Step-by-step explanation:

Units or production (UOP) method of depreciation bases the depreciation expense of a machine or equipment on how much it is actually used during the period.

depreciable value = $50,000 - $10,000 = $40,000

depreciation rate per unit = $40,000 / 25,000 = $1.60

Year Projected Production units Actual Production units

1 4,500 5,000

2 5,000 4,000

3 3,500 3,000

4 5,500 5,000

5 6,500 Not known

Total 25,000

depreciation expense year 4 = $1.60 x 5,000 = $8,000

accumulated depreciation year 4 = $1.60 x 17,000 = $27,200

book value = $50,000 - $27,200 = $22,800

if sold at $30,000, gain resulting from sale = $30,000 - $22,800 = $7,200