Question

A factory machine was purchased for $380000 on January 1, 2021. It was estimated that it would have a $70000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 37000 hours in the 5 years. The company ran the machine for 3700 actual hours in 2021. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be $62000. $70000. $38000. $31000.

Answer 1

If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be (D) $31,000.

What is depreciation?

• Depreciation in accounting refers to two aspects of the same concept: first, the actual decrease in fair value of an asset, such as the decrease in value of factory equipment each year as it is used and worn, and second, the allocation of the original cost of the assets to periods in which the assets are used in accounting statements (depreciation with the matching principle).
• Thus, depreciation is the loss in asset value and the mechanism used to reallocate, or "write down," the cost of a tangible asset (such as equipment) throughout its usable life period.

To find If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021:

• Annual depreciation expense = (Cost - Salvage value) ÷ 10
• = (380,000 - 70,000) ÷ 10
• = 310,000 ÷ 10
• = $31,000

Therefore, if the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be (D) $31,000.

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The correct question is given below:

A factory machine was purchased for $380000 on January 1, 2021. It was estimated that it would have a $70000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 37000 hours in the 5 years. The company ran the machine for 3700 actual hours in 2021. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2021 would be

(A) $62000.

(B) $70000.

(C) $38000.

(D) $31000.