Lester Company purchases a piece of equipment on Jan.2,2010,for $30,000.The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $3,000.Lester uses a calendar fiscal year.The entry to record the amount of depreciation for 2010,using the production method and assuming that 6,100 units are produced,is:

Question

Quizplus · Accepted Answer

The formula for calculating depreciation using the production method is:
Depreciation per unit = (Cost of Asset - Residual Value)/Estimated Units of Production
Depreciation expense for the year = Depreciation per unit x Actual Units Produced
Depreciation per unit = ($30,000 - $3,000)/50,000 = $0.54
Depreciation expense for the year = $0.54 x 6,100 units produced = $3,294
Therefore, the correct entry to record depreciation for the year using the production method is:
Depreciation Expense - Equipment $3,294
Accumulated Depreciation - Equipment $3,294

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