Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000.The machine's useful life is estimated to be 5 years,or 300,000 units of product,with a $15,000 salvage value.During its first year,the machine produces 64,500 units of product.What journal entry would be needed to record the machines' first year depreciation under the units-of-production method?
A)Debit Depletion Expense $25,800;credit Accumulated Depletion $25,800.
B)Debit Depletion Expense $29,025;credit Accumulated Depletion $29,025.
C)Debit Depreciation Expense $29,025;credit Accumulated Depreciation $29,025.
D)Debit Depreciation Expense $25,800;credit Accumulated Depreciation $25,800.
E)Debit Amortization Expense $24,000;credit Accumulated Amortization $24,000.

Question

Quizplus · Accepted Answer

Under the units-of-production method, depreciation is calculated based on the machine's usage or production activity. To calculate the depreciation expense, we need to find the depreciation rate per unit:

Depreciation rate per unit = (cost of machine - salvage value) / total units of production
Depreciation rate per unit = ($135,000 - $15,000) / 300,000
Depreciation rate per unit = $0.40 per unit

To find the depreciation expense for the first year, we multiply the depreciation rate per unit by the number of units of production in the first year:

Depreciation expense = depreciation rate per unit x units of production in first year
Depreciation expense = $0.40 x 64,500
Depreciation expense = $25,800

Therefore, the journal entry needed to record the machine's first year depreciation would be:

Debit Depreciation Expense $25,800
Credit Accumulated Depreciation $25,800

Minor Company Installs a Machine in Its Factory at the Beginning