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.
35 - 6 = 30
30/5 = 6
depreciates 6 thousand per year
To calculate the first 2 years depreciation using the units of production method, you need to follow these steps:
1. Calculate the total depreciation:
Total Depreciation = Purchase Cost - Residual Value
Total Depreciation = $36,000 - $6,000
Total Depreciation = $30,000
2. Calculate the depreciation per unit:
Depreciation per Unit = Total Depreciation / Expected Units of Production
Depreciation per Unit = $30,000 / 120,000 units
Depreciation per Unit = $0.25 per unit
3. Calculate the depreciation for each year:
Year 1 Depreciation = Depreciation per Unit * Actual Units Produced in Year 1
Year 1 Depreciation = $0.25 * 19,000 units
Year 1 Depreciation = $4,750
Year 2 Depreciation = Depreciation per Unit * Actual Units Produced in Year 2
Year 2 Depreciation = $0.25 * 38,000 units
Year 2 Depreciation = $9,500
Therefore, the first 2 years depreciation for the machine using the units of production method would be $4,750 for Year 1 and $9,500 for Year 2.