Question

Boston Corp. purchased equipment with a cost of $70,000 at the beginning of 2016. The equipment has an estimated life of 25 years or 25,000 units of product. The estimated residual value is $7,500. During 2016, 1,100 units of product were produced with this machinery. Determine the following:

a. Amount of total accumulated depreciation at December 31, 2016, using units-of-production depreciation.

$

b. Book value at the end of 2016 using straight-line depreciation.

$

c. A company may choose units-of-production depreciation instead of straight-line,

Answer 1

	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE
	Purchase Cost of Machine	$                70,000.00
	Less: Salvage Value	$                  7,500.00
	Net Value for Depreciation	$                62,500.00
	Usefule life of the Assets	25 years
	Depreciation per year = Value for Depreciation / 25 years =	2,500.00
	Total Depreciation for the year 2016 =	$                  2,500.00
	CALCULATION OF THE DEPRECIATION AS PER UNITS OF PRODUCTION
	Purchase Cost of Machine	$                70,000.00
	Less: Salvage Value	$                  7,500.00
	Net Value for Depreciation	$                62,500.00
	Expected to production in Units	25,000.00	Units
	Depreciation per Hours =	2.50	Per Units
	($ 84,000 / 525,000 Units)
	Depreciation for Year 2016 = (1100 units * $ 2.50)	$                  2,750.00
	Answer = a) = Total Depreciation as per unit of production =	2,750.00
	Answer = b)
	Purchase value of the assets =	70,000.00
	Less: depreciation as per SLM	2,500.00
	Book Value at the end of the year 2016 =	67,500.00
	Answer = c)
	Yes the company may choose units of production because the depreciation of the year is higher in this
	when the depreciation is higher than there is saving of income tax