On January 1,2015,Zade Manufacturing Corporation purchased a machine for $40,000,000.The corporation expects to use the machine for 24,000 hours over the next 6 years.The estimated residual value of the machine at the end of the sixth year is $40,000.The corporation used the machine for 3,600 hours in 2015 and 5,000 hours in 2016. Calculate the book value of the machine at the end of 2016 if the company uses the units-of-production method of depreciation.

Question

Quizplus · Accepted Answer

The correct answer is A because the book value of the machine at the end of 2016 is $25,681,000. The units-of-production method of depreciation allocates the cost of the machine over its useful life based on the number of units produced. In this case, the machine is expected to be used for 24,000 hours over the next 6 years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2015 and 5,000 hours in 2016. Therefore, the total number of units produced in 2015 and 2016 is 3,600 + 5,000 = 8,600 hours. The depreciation expense for 2015 is $40,000,000 x 3,600 hours / 24,000 hours = $6,000,000. The depreciation expense for 2016 is $40,000,000 x 5,000 hours / 24,000 hours = $8,333,333. The book value of the machine at the end of 2016 is $40,000,000 - $6,000,000 - $8,333,333 = $25,681,000.

On January 1,2015,Zade Manufacturing Corporation Purchased a Machine for $40,000,000