Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product.
-What journal entry would be needed to record the machines' second year depreciation under the units-of-production method?

Question

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. 
-What journal entry would be needed to record the machines' second year depreciation under the units-of-production method?

Quizplus · Accepted Answer

Under the units-of-production method, depreciation expense is based on the number of units produced by the machine during the year. To calculate yearly depreciation, we need to find out the depreciation per unit first.

Total depreciation = Cost of asset - Salvage value
= $87,000 - $7,000
= $80,000

Depreciation per unit = Total depreciation / Estimated units produced during the life of the asset
= $80,000 / 400,000 units
= $0.20 per unit

To record the machines' second-year depreciation, we multiply the depreciation per unit by the units produced during the year:

Depreciation expense = Depreciation per unit x Units produced
= $0.20 x 84,500 units
= $16,900

Therefore, the journal entry should be:
Debit Depreciation Expense $16,900
Credit Accumulated Depreciation $16,900.

Option B is the best choice as it correctly uses the depreciation expense and accumulated depreciation accounts.

Wickland Company Installs a Manufacturing Machine in Its Production Facility