Question

SportsWorld purchased a machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. SportsWorld estimates that the machine could produce 750,000 units of product over its useful life. In the first year, 95,000 units were produced. In the second year, production increased to 111,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year?

Multiple Choice

• $49,440

• $22,800

• $26,640

• $36,000

Factor(s) that might limit an intangible asset's useful life include

Multiple Choice

• Contractual

• Regulatory

• Legal

Because depreciation is based on predictions of residual value and useful life, depreciation is an estimate.

True or False

TrueFalse

The units of production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

True or False

TrueFalse

Machinery after two years worth of depreciation has an opening book value of $6,400. At the beginning of the third year, the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400. The revised annual depreciation using the straight-line method is $1,500.

True or False

TrueFalse

Answer 1

Answer to first question in the list: Option-(c): $26,640 Reason: Under units-of-production method, Depreciation expense for a year = [Depreciable cost / Estimated units of production over asset's life) x Actual units produced during the year Capitalized cost Less: Residual value Depreciable cost Estimated units of production over asset's economic life Depreciation expense per unit Number of units produced during second year Depreciation expense for second year $190,000 -$10,000 $180,000 750,000 $0.24 ($180000 / 750000 units] 111,000 $26,640 [111000 units x $0.24]