Gomez Company purchases a piece of equipment on Jan.2,2014,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 2014,using the production method and assuming 8,000 units are produced,is

Question

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Using the production method, depreciation is calculated by dividing the depreciable cost (cost - residual value) by the total units of production expected over the life of the equipment.

The depreciable cost is $27,000 ($30,000 - $3,000). The total units of production expected over the life of the equipment is 50,000 units. Therefore, the depreciation per unit of production is $0.54 ($27,000 ÷ 50,000).

For 2014, 8,000 units were produced. Therefore, the depreciation expense for 2014 is $4,320 ($0.54 × 8,000). This amount should be debited to Depreciation Expense and credited to Accumulated Depreciation. Thus, option C is the correct answer.

Gomez Company Purchases a Piece of Equipment on Jan