On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is the book value of the machine at the end of 2012 if the company uses units-of-production depreciation?

Question

Quizplus · Accepted Answer

The units-of-production depreciation method calculates depreciation based on usage. Total depreciation is $36,000 ($40,000 - $4,000). Depreciation per hour is $1.50 ($36,000 / 24,000 hours). For 2011 and 2012, the machine was used for 20,000 hours (8,000 + 12,000), resulting in $30,000 depreciation (20,000 hours x $1.50). The book value at the end of 2012 is $10,000 ($40,000 - $30,000).

On January 1, 2011, Zane Manufacturing Company Purchased a Machine