A factory machine was purchased for $20,000 on March 1, 2017. It was estimated that it would have a $4,000 residual value at the end of its 5-year useful life. It was also estimated that the machine would be run 25,000 hours in the 5 years. If the actual number of machine hours run in 2017 was 4,000 hours and the company uses the units-of-production method of depreciation, the amount of depreciation expense for 2017 would be

Question

Quizplus · Accepted Answer

First, we need to calculate the depreciation rate per unit of production:

Depreciation rate = (Cost - Residual value) / Estimated total units of production
Depreciation rate = ($20,000 - $4,000) / 25,000 = $16,000 / 25,000 = $0.64 per unit

Then, we can calculate the depreciation expense for 2017 based on the actual units produced:

Depreciation expense = Actual units produced in 2017 x Depreciation rate per unit
Depreciation expense = 4,000 x $0.64 = $2,560

Therefore, the answer is B.

A Factory Machine Was Purchased for $20,000 on March 1