Question

A machine with a cost of $198,000 has an estimated residual value of $18,000 and an estimated life of 3 years or 18,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the second full year, during which the machine was used 6,700 hours?

$6,700

$67,000

$80,400

$49,000

Answer 1

B. $67,000

Depreciation expense per hour = (Cost - Estimated residual value) / Estimated life

Depreciation expense per hour = ($198,000 - $18,000) / 18,000 hours

Depreciation expense per hour = $10 per hour

Amount of depreciation for the second full year = 6,700 hours × $10

Amount of depreciation for the second full year = $67,000