On January 1, 2013, SK purchased a machine that cost $20,000. It has an estimated four-year life, and a 10 percent residual value. The machine is expected to be used for a total of 1,500 productive hours over the next 4 years. During 2013, it was used 430 hours. Using (a) straight-line and (b) productive time, SK should report 2013 amortization expense as follows: $\begin{array} { | l | l | l | }
\hline & \text { Straight-line } & \text { Productive Hours } \
\hline 1 & \$ 4.500 & \$ 5.160 \
\hline 2 & \$ 4.500 & \$ 5.735 \
\hline 3 & \$ 5.000 & \$ 5.160 \
\hline 4 & \$ 5.000 & \$ 5.735 \
\hline
\end{array}$

Question

On January 1, 2013, SK purchased a machine that cost $20,000. It has an estimated four-year life, and a 10 percent residual value. The machine is expected to be used for a total of 1,500 productive hours over the next 4 years. During 2013, it was used 430 hours. Using (a) straight-line and (b) productive time, SK should report 2013 amortization expense as follows: $\begin{array} { | l | l | l | } 
\hline & \text { Straight-line } & \text { Productive Hours } \
\hline 1 & \$ 4.500 & \$ 5.160 \
\hline 2 & \$ 4.500 & \$ 5.735 \
\hline 3 & \$ 5.000 & \$ 5.160 \
\hline 4 & \$ 5.000 & \$ 5.735 \
\hline
\end{array}$

Quizplus · Accepted Answer

Straight-line amortization expense is calculated as the cost of the asset minus its residual value, divided by its useful life. In this case, the cost of the asset is $20,000, the residual value is $2,000 (10% of $20,000), and the useful life is 4 years. Therefore, the straight-line amortization expense is $4,500 per year.Productive time amortization expense is calculated as the cost of the asset minus its residual value, multiplied by the ratio of hours used in the period to the total hours of useful life. In this case, the cost of the asset is $20,000, the residual value is $2,000, the hours used in the period are 430, and the total hours of useful life are 1,500. Therefore, the productive time amortization expense for 2013 is $5,160.

On January 1, 2013, SK Purchased a Machine That Cost