A factory machine was purchased for $375,000 on January 1, 2021.It was estimated that it would have a $75,000 salvage value at the end of its 5-year useful life.It was also estimated that the machine would be run 40,000 hours in the five years.The company ran the machine for 4,000 actual hours in 2021.If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be

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Quizplus · Accepted Answer

The units-of-activity method calculates depreciation based on the actual usage of the asset. The total cost minus salvage value ($375,000 - $75,000 = $300,000) is divided by the total estimated usage (40,000 hours) to find the depreciation per hour, which is $7.50 per hour. For 4,000 hours of use in 2021, the depreciation expense is 4,000 hours * $7.50/hour = $30,000.

A Factory Machine Was Purchased for $375,000 on January 1