Question

Boston Corp. purchased equipment with a cost of $70,000 at the beginning of 2016. The equipment has an estimated life of 25 years or 25,000 units of product. The estimated residual value is $7,500. During 2016, 1,100 units of product were produced with this machinery. Determine the following:

a. Amount of total accumulated depreciation at December 31, 2016, using units-of-production depreciation.

$

b. Book value at the end of 2016 using straight-line depreciation.

$

c. A company may choose units-of-production depreciation instead of straight-line,

Answer 1

a

Depreciation per unit = (cost - salvage value)/ estimated total production = (70000-7500)/25000 = 2.5 per unit

Depreciation for the year = 1100 units * 2.5 = 2750

Accumulated depreciation will be 2,750

b

Straight line depreciation = (cost - residual value)/ useful life = (70000-7500)/25 = 2500 per year

Book value at end of year = Cost less depreciation charged = 70000 - 2500 = 67,500

c

A company may chose units of production over straight line as units of production better represents the use of the machinery.