Salta Company installs a manufacturing machine in its factory at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 residual value. During its second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the straight-line method.
A) $16,900.
B) $16,000.
C) $17,400.
D) $18,379.
E) $20,880.

Question

Quizplus · Accepted Answer

Under the straight-line method, annual depreciation expense = (Cost of the asset – Residual value) / Useful life in units.

In this case, the annual depreciation expense would be:

($87,000 - $7,000) / 5 years = $16,000 per year

Since we are calculating the machine's second-year depreciation, we only need to subtract the first-year depreciation from the total depreciation:

$16,000 x 2 years = $32,000 total depreciation over 5 years

$32,000 / 5 years = $6,400 first-year depreciation

$16,000 - $6,400 = $9,600 second-year depreciation.

Therefore, the second-year depreciation is $9,600, which is option B.

Salta Company Installs a Manufacturing Machine in Its Factory at the Beginning