Fields Company purchased equipment on January 1 for $180,000.This system has a useful life of 8 years and a salvage value of $20,000.The company estimates that the equipment will produce 40,000 units over its 8-year useful life.Actual units produced are: Year 1 - 4,000 units; Year 2 - 6,000 units; Year 3 - 8,000 units; Year 4 - 5,000 units; Year 5 - 4,000 units; Year 6 - 5,000 units; Year 7 - 7,000 units; Year 8 - 3,000 units.What would be the depreciation expense for the second year of its useful life using the units-of-production method?
A)$20,000.
B)$45,000.
C)$33,750.
D)$16,000.
E)$24,000.

Question

Quizplus · Accepted Answer

The units-of-production method calculates depreciation based on actual usage. The cost minus salvage value is $160,000 ($180,000 - $20,000). The depreciation per unit is $4 ($160,000 / 40,000 units). For Year 2, with 6,000 units produced, the depreciation expense is $24,000 (6,000 units x $4 per unit).

Fields Company Purchased Equipment on January 1 for $180,000