Question

on January 1, 2021, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2021 and 2022, 25,000 and 84,000 units, respectively, were produced.

Required:
Compute depreciation for 2021 and 2022 and the book value of the drill press at December 31, 2021 and December 31, 2022, assuming the units-of-Oproduction method is used. (Round depreciation per unit to 2 decimal places.)
  

Answer 1

Answer :

Particularls	2021	2022
Depreciation	5,455	4,909
Book value	30,545	25,636

Explanation :

Computation of Depreciation Expense and Book value by using Sum of Years Digit Methods:

Step 1 :

Depreciation Expense = (Cost of Asset - Residual value) x Remaining line / Total Sum of useful life

Total Sum of useful life = n (n+1) / 2 = 10(10+1) / 2 = 55

Depreciation expense for year 2021 = ($36,000 - $6,000) x 10/55

= $30,000 x 10/55

= $5,455

Book Value at the end of Year 2021 = Cost of Asset – Depreciation Expense

= $36,000 - $5,455

= $30,545

Step 2 :

Depreciation expense for year 2022 = ($36,000 - $6,000) x 9/55

= $30,000 x 9/55

= $4,909

Book Value at the end of Year 2021 = Book value at the end of year 2021 – Depreciation Expense

= $30545 - $4909

= $25,636