Question

At the beginning of Year 1, Trey Inc., purchased a machine with a total acquisition cost of $33,000. The machine has an estimated residual value of $3,000 at the end of its estimated useful life of 3 years. The machine is expected to produce a total of 60,000 units over its estimated useful life. During Year 1, it was used to produce a total of 16,000 units. Using the straight-line method, what is the amount of annual depreciation that should be recorded?

Answer 1

Answer:

$8,000

Explanation:

Data provided in the question:

cost of machine = $33,000

Estimated residual value = $3,000

Estimated useful life = 3 years

Estimated useful life in terms of production = 60,000 units

Total units produced in year 1 = 16,000

Now,

Rate of annual depreciation with respect to units produced

= [ Cost - Salvage value ] ÷ Estimated useful life in terms of production

= [ $33,000 - $3,000 ] ÷ 60,000

= $0.5 per unit

Therefore,

Depreciation expense for the year 1

= Rate of annual depreciation × Total units produced in year 1

= $0.5 per unit × 16,000 units.

= $8,000