Fantasmic Moulds purchased equipment on January 1, 2009 for $275,000. It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end. Additional Information
Assuming the company uses the units-of-production depreciation method, what is the depreciation expense for 2009?

Question

Fantasmic Moulds purchased equipment on January 1, 2009 for $275,000. It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end. Additional Information
 Assuming the company uses the units-of-production depreciation method, what is the depreciation expense for 2009?

Quizplus · Accepted Answer

To calculate the depreciation expense for 2009 using the units-of-production method, we need to first estimate the total number of units the equipment will produce in its useful life. 
Total units = 10,000
Units produced in 2009 = 2,000 (assuming equal production each year) 
Depreciation per unit = (Cost - Residual Value) / Total Units = ($275,000 - $25,000) / 10,000 = $25 
Depreciation expense for 2009 = Depreciation per unit x Units produced in 2009 = $25 x 2,000 = $52,500. 
Therefore, the correct answer is C.

Fantasmic Moulds Purchased Equipment on January 1, 2009 for $275,000