Question

A machine that cost $121,000 has an estimated residual value of $11,000 and an estimated useful life of 11,000 machine hours. The company uses units-of-production depreciation and ran the machine 3,000 hours in year 1, 2,000 hours in year 2, and 3,000 hours in year 3. Calculate its book value at the end of year 3. (Do not round intermediate calculations.)

Answer 1

Book value= $41,000

Step-by-step explanation:

Giving the following information:

Purchase price= $121,000

Salvage value= $11,000

Useful life= 11,000 machine hours

First, we need to calculate the depreciation expense for each year using the following formula:

Annual depreciation= [(original cost - salvage value)/useful life of production in hours]*hours operated

Year 1:

Annual depreciation= [(121,000 - 11,000) / 11,000]*2,000

Annual depreciation= 10*3,000

Annual depreciation= $30,000

Year 2:

Annual depreciation= 10*2,000

Annual depreciation= $20,000

Year 3:

Annual depreciation= 10*3,000

Annual depreciation= $30,000

Now, the accumulated depreciation:

Accumulated depreciation= 30,000 + 20,000 + 30,000

Accumulated depreciation= $80,000

Finally, the book value at the end of year 3:

Book value= purchase price - accumulated depreciation

Book value= 121,000 - 80,000

Book value= $41,000