Question

2) On January 1, 2016, Amethyst Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The schedule of usage of the machine is below. Year Usage 4,500 6,000 5,200 4,300 2,000 2,000 Prepare the depreciation schedule using the units-of-production method of depreciation.

Answer 1

Units of Production Depreciation Method:

Depreciable Cost = $40,000,000
Salvage Value = $40,000
Useful Life = 24,000 hours

Depreciation per hour = (Depreciable Cost - Salvage Value) / Useful Life
Depreciation per hour = ($40,000,000 - $40,000) / 24,000
Depreciation per hour = $39,960,000 / 24,000
Depreciation per hour = $1,665

Year Units of Production Depreciation per Depreciable Hours hour 4,500 1,665 $ 6,000 1,665 $ 5,200 1,665 $ 4,300 1,665 $ 2,000 1,665 $ 2,000 1,665 $ 24,000 $ Depreciation Expense 7,492,500 9,990,000 8,658,000 7,159,500 3,3 30,000 3,330,000 39,960,000 Total