Fantasmic Moulds purchased equipment on January 1, 2019 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
$$\begin{array} {| l | l| }
\hline \text { Year } & \text { Units of Output } \
\hline 2019 & 2,100 \
\hline 2020 & 2,000 \
\hline 2021 & 1,700 \
\hline 022 & 2,300 \
\hline 2023 & 1,900 \
\hline
\end{array}$$ Assuming the company uses the units-of-production depreciation method, what is the depreciation expense for 2019?

Question

Fantasmic Moulds purchased equipment on January 1, 2019 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
$$\begin{array} {| l | l| } 
\hline \text { Year } & \text { Units of Output } \
\hline 2019 & 2,100 \
\hline 2020 & 2,000 \
\hline 2021 & 1,700 \
\hline 022 & 2,300 \
\hline 2023 & 1,900 \
\hline
\end{array}$$ Assuming the company uses the units-of-production depreciation method, what is the depreciation expense for 2019?

Quizplus · Accepted Answer

To calculate depreciation using the units-of-production method, we need to follow these steps:
1. Calculate the total units of output over the equipment's useful life:

2,100 + 2,000 + 1,700 + 2,300 + 1,900 = 10,000

2. Calculate the depreciation per unit:

Depreciation per unit = (Cost - Residual value) / Total units of output 
= ($275,000 - $25,000) / 10,000 
= $25

3. Calculate the depreciation expense for 2019:

Depreciation expense = Depreciation per unit X Units of output in 2019 
= $25 X 2,100 
= $52,500

Therefore, the depreciation expense for 2019 is $52,500 which is option C.

Fantasmic Moulds Purchased Equipment on January 1, 2019 for $275,000