Question

On January 2, 2019, Konrad Corporation acquired equipment for $500,000. The estimated life of the equipment is 5 years or 18,000 hours. The estimated residual value is $14,000. If Konrad Corporation uses the units of production method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2020, assuming that during this period, the asset was used 6,000 hours?
A. $166,667
B. $97,200
C. $162,000
D. $171,333

Answer 1

Answer:

C. $162,000

Explanation:

As for the provided information,

The cost of machine = $500,000

Residual value = $14,000

Therefore amount to be depreciated in useful life = $500,000 - $14,000 = $486,000

Using units of production method we have:

Total expected hours of production = 18,000

Therefore, depreciation per hour = $486,000/18,000 = $27 per hour

Total use in current year = 6,000 hours

Therefore, depreciation in current year = $27 $\times$ 6,000 = $162,000