Question

On January​ 1, 2018, McHenry Manufacturing Corporation purchased a machine for​ $40,600,000. McHenry's management expects to use the machine for​ 26,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is​ $45,000. The machine was used for​ 3,700 hours in 2018 and​ 5,200 hours in 2019. Calculate the book value of the machine at the end of 2019 if the company uses the​ units-of-production method of depreciation.​ (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest​ dollar.)

Answer 1

Answer: The book value of the machine at the end of 2019 would be $26,717,712 calculated using units of production as method of depreciation.

Explanation: The first thing we have to do is to calculate the amortizable value for this we have to substract from the value of purchase the residual value. $40,600,000 - $45,000= $40,555,000

Then we have to calculate the hourly amortization so we must divide the amortizable value by the quantity of hoursexpected to be use by the machine: $40,555,000/26,000hrs= $1,559,81 per hour.

Then in 2018 the machine was used 3700 hours so it was depreciated $5,771,288.46 and in 2018, 5200 hours so it was depreciated $8,111,000

So the book value of the machine at the end of 2019 would be $40,600,000-$5,771,288-$8,111,000=$26,717,712