Question

Mohr Company purchases a machine at the beginning of the year at a cost of $39,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 68,000 units. The machine is estimated to have a $5,000 salvage value. The company produces 10,500 units in year 1 and 7,500 units in year 2. Depreciation expense in year 2 is:

• $23,400.

• $3,750.

• $5,000.

• $6,800.

• $15,600.

Answer 1

Correct answer----------$3,750

Working

Units of Production method
A	Cost	$ 39,000
B	Residual Value	$ 5,000
C=A - B	Depreciable base	$ 34,000
D	Usage in units(in Units)	68000
E	Depreciation per unit	$                        0.50

.

Depreciation schedule-Units of Activity
Year	Book Value	Usage	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$                39,000	10500	$                      5,250	$                       5,250	$               33,750
2	$                33,750	7500	$                      3,750	$                       9,000	$               30,000