On January 1, 2018, McHenry Manufacturing Corporation purchased a machine for $40,600,000. McHenry's management expects to use the machine for 26,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $45,000. The machine was used for 3700 hours in 2018 and 5200 hours in 2019. Calculate the book value of the machine at the end of 2019 if the company uses the units-of-production method of depreciation. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The units-of-production method calculates depreciation based on usage. First, calculate the depreciation per hour: ($40,600,000 - $45,000) / 26,000 hours = $1,560.58 per hour. For 2018, depreciation is 3700 hours * $1,560.58 = $5,774,146. For 2019, depreciation is 5200 hours * $1,560.58 = $8,114,163. Total depreciation by end of 2019 is $5,774,146 + $8,114,163 = $13,888,309. Subtract this from the initial cost: $40,600,000 - $13,888,309 = $26,711,691. Rounding to the nearest dollar gives $26,717,691.

On January 1, 2018, McHenry Manufacturing Corporation Purchased a Machine