Salta Company installs a manufacturing machine in its factory 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 residual 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?
A) Debit Depletion Expense $16,900; credit Accumulated Depletion $16,900.
B) Debit Depletion Expense $16,000; credit Accumulated Depletion $16,000.
C) Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900.
D) Debit Depreciation Expense $16,000; credit Accumulated Depreciation $16,000.
E) Debit Amortization Expense $16,900; credit Accumulated Amortization $16,900.

Question

Quizplus · Accepted Answer

Under the units-of-production method, depreciation is based on the number of units produced. The formula to calculate depreciation per unit is (Cost - Residual Value) ÷ Estimated total units of production. In this case, the calculation would be ($87,000 - $7,000) ÷ 400,000 = $0.20 per unit. To record the depreciation expense for the second year, we would multiply the depreciation per unit by the number of units produced in that year: $0.20 × 84,500 = $16,900. Therefore, the journal entry needed to record the machine's second year depreciation would be Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900. Choice C is the only option that correctly reflects this entry.

Salta Company Installs a Manufacturing Machine in Its Factory at the Beginning