A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units.
-Using the units-of-production method, what is the book value of the machine at the end of the second year?

Question

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. 
-Using the units-of-production method, what is the book value of the machine at the end of the second year?

Quizplus · Accepted Answer

The units-of-production depreciation expense for the first year is ($190,000 - $10,000) / 75,000 * 15,000 = $36,000. For the second year, it is ($190,000 - $10,000) / 75,000 * 19,000 = $45,600. The total depreciation over two years is $36,000 + $45,600 = $81,600. The book value at the end of the second year is $190,000 - $81,600 = $108,400.

A Company Purchased a Weaving Machine for $190,000