using problem 17-21 calculate the first 2 years depreciation assuming the units of production method. this machine is expceted to produce 120,000 units. in year 1 it produced 19,000 units and in year 2 38,000 units
problem 17-21
Jim company bought a machine for $36,000 with an estimated life of 5 years. The residual value of the machine is $6,000. Calculate (a) the annual depreciation and (b) the book value at the end of year 3. Assume straight line depreciation.
To calculate the depreciation using the units of production method, you need to follow these steps:
Step 1: Determine the depreciable base
The depreciable base is the cost of the machine minus the residual value. In this case, the cost of the machine is $36,000 and the residual value is $6,000. So, the depreciable base is $36,000 - $6,000 = $30,000.
Step 2: Calculate the depreciation rate per unit
To determine the depreciation rate per unit, divide the depreciable base by the expected number of units over the machine's life. In this case, the expected number of units is 120,000 and the depreciable base is $30,000. So, the depreciation rate per unit is $30,000 / 120,000 = $0.25 per unit.
Step 3: Calculate the annual depreciation
To calculate the annual depreciation, multiply the depreciation rate per unit by the number of units produced each year. In Year 1, the machine produced 19,000 units, so the annual depreciation for Year 1 is $0.25 * 19,000 = $4,750. In Year 2, the machine produced 38,000 units, so the annual depreciation for Year 2 is $0.25 * 38,000 = $9,500.
Therefore, the first-year depreciation is $4,750 and the second-year depreciation is $9,500 using the units of production method.