A machine that cost $400,000 has an estimated residual value of $40,000 and an estimated useful life of 20,000 machine hours. The company uses units-of-production depreciation and ran the machine 3,000 hours in year 1, 8,000 hours in year 2, and 6,000 hours in year 3. Required:Calculate its book value at the end of year 3
Question
A machine that cost 40,000 and an estimated useful life of 20,000 machine hours. The company uses units-of-production depreciation and ran the machine 3,000 hours in year 1, 8,000 hours in year 2, and 6,000 hours in year 3. Required:Calculate its book value at the end of year 3
Solution
To calculate the book value at the end of year 3, we first need to calculate the depreciation per unit (hour in this case).
Step 1: Calculate Depreciation per Unit Depreciation per unit = (Cost of Machine - Residual Value) / Useful Life in Hours Depreciation per unit = (40,000) / 20,000 hours Depreciation per unit = $0.18 per hour
Step 2: Calculate Total Depreciation for Each Year Year 1 Depreciation = 3,000 hours * 540 Year 2 Depreciation = 8,000 hours * 1,440 Year 3 Depreciation = 6,000 hours * 1,080
Step 3: Calculate Accumulated Depreciation at the End of Year 3 Accumulated Depreciation = Year 1 Depreciation + Year 2 Depreciation + Year 3 Depreciation Accumulated Depreciation = 1,440 + 3,060
Step 4: Calculate Book Value at the End of Year 3 Book Value = Cost of Machine - Accumulated Depreciation Book Value = 3,060 = $396,940
So, the book value of the machine at the end of year 3 is $396,940.
Similar Questions
A company purchases a machine for $10,000. The estimated residual value is $4,000, and the estimated service life is 4 years or 10,000 units. The company uses the straight-line method of depreciation. The depreciable cost of the asset is:Multiple Choice$6,000$10,000$1,000$1,500
Machinery is purchased for $140,000. It is estimated that it has a useful life of 5 years and a residual value of $20,000. Using the straight-line method, the balance in the accumulated depreciation account at the end of the third year of the machine’s useful life is:$68,000$140,000$72,000$24,000
A machine with a cost of Sh 205,000 has an estimated salvage value of Sh 15,000 and an estimated useful life of 20 years or 9,500 hours. It is to be depreciated using the units-of-activity method of depreciation. (a) The rate of depreciation is Sh per hour. (b) The amount of depreciation for the second full year, during which the machine was used for 5,000 hours is Sh
A machine is purchased for $60 000. It is estimated that it has a useful life of 5 years and will then be sold for $5000. Using the straight-line method, calculate the amount of depreciation to be charged for each year of useful life.Group of answer choices$5000$12 000$0$11 000
A factory machine was purchased for P75,000 on January 1, 2008. It was estimated that it would have a P15,000 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 5 years. The company ran the machine for 4,000 actual hours in 2008. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2008 would be
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.