Fields Company purchased equipment on January 1 for $180,000. This system has a useful life of 8 years and a salvage value of $20,000. The company estimates that the equipment will produce 40,000 units over its 8-year useful life. Actual units produced are: Year 1 - 4,000 units; Year 2 - 6,000 units; Year 3 - 8,000 units; Year 4 - 5,000 units; Year 5 - 4,000 units; Year 6 - 5,000 units; Year 7 - 7,000 units; Year 8 - 3,000 units. What would be the depreciation expense for the second year of its useful life using the units-of-production method? A) 20,000 B) 16,000 C) 24,000 D) 45,000 D) 33,750

Question

Shannon Owen

Business

17 February, 04:01

Fields Company purchased equipment on January 1 for $180,000. This system has a useful life of 8 years and a salvage value of $20,000. The company estimates that the equipment will produce 40,000 units over its 8-year useful life. Actual units produced are: Year 1 - 4,000 units; Year 2 - 6,000 units; Year 3 - 8,000 units; Year 4 - 5,000 units; Year 5 - 4,000 units; Year 6 - 5,000 units; Year 7 - 7,000 units; Year 8 - 3,000 units. What would be the depreciation expense for the second year of its useful life using the units-of-production method? A) 20,000 B) 16,000 C) 24,000 D) 45,000 D) 33,750

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Lawrence Chang · Answer 1

Answer: C-$24,000

Explanation:The units of production method is a method of depreciation where depreciation expense allocated in a year corresponds to the actual use of the asset.

Units of production method = [ (Original cost of the machine - salvage value) : estimated productive capacity of the machinery] * actual units produced.

The cost of the equipment - $180,000

Salvage value = $ 20,000

Estimated productive capacity - 40,000

Actual production in year 2 - 6000 units

Depreciation expense in year 2 = (180000 - 20,000) : 40,000 = $ 4

4 * 6000 = $24,000