Question

Sheffield Corp. purchased machinery for $381,150 on January 1, 2018. It is estimated that it will have a useful life of 10 years, salvage value of $18,150, production of 290,400 units, and working hours of 25,000. During 2018, Sheffield Corp. uses the machinery for 2,650 hours, and the machinery produces 30,855 units. During 2019 Sheffield Corp uses the machine for 2,400 hours and the machinery produces 28,625 units. From the information given compute the accumulated depreciation expense as of December 31, 2019 using the units of output activity method.

Answer 1

Answer:

Accumulated depreciation balance on 31 December 2019 = $73,326

Explanation:

Total Cost of the machine = $381,150

Salvage value = $18,150

Therefore value to be depreciated = $381,150 - $18,150 = $363,000

Life of asset = 10 years.

Units to be produced = 290,400

Working hours = 25,000

Under the units of output activity method the asset shall be depreciated based on output, but here the output of machinery is 25,000 hours in its life thus, depreciation shall be charged based on number of hours and not on units.

Therefore accumulated depreciation on December 31 2019 shall be based on total hours of 2018 and 2019

= 2,650 + 2,400 = 5,050 hours

Depreciation = $\frac{363,000}{25,000} \times 5,050 = 73,326$

Accumulated depreciation balance on 31 December 2019 = $73,326