Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product.
-What journal entry would be needed to record the machines' first year depreciation under the units-of-production method?

Question

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. 
-What journal entry would be needed to record the machines' first year depreciation under the units-of-production method?

Quizplus · Accepted Answer

Under the units-of-production method, depreciation is calculated based on the usage of the asset rather than time. To calculate the depreciation expense for the first year, we need to first calculate the depreciation rate per unit, which is (cost-salvage value)/total units of production = ($135,000 - $15,000)/300,000 = $0.40 per unit.

So, the depreciation expense for the first year would be the depreciation rate per unit multiplied by the units produced in the first year, which is $0.40 x 64,500 = $25,800.

The journal entry to record this depreciation expense would be: 
Debit Depreciation Expense $25,800 
Credit Accumulated Depreciation $25,800

Minor Company Installs a Machine in Its Factory at the Beginning