Question

A factory machine was purchased for $70,000 on January 1, 2014. It was estimated that it would have a $14,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. If the actual number of machine hours ran in 2014 was 4,000 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2014 would beA) $11,200. B) $5,600. C) $14,000 D) $7,000.

Answer 1

Answer:

The correct answer is B.

Explanation:

Giving the following information:

A factory machine was purchased for $70,000 on January 1, 2014. It was estimated that it would have a $14,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. If the actual number of machine-hours ran in 2014 was 4,000 hours and the company uses the units-of-activity method of depreciation.

Annual depreciation= [(original cost - salvage value)/useful life of production in units]*units produced

Annual depreciation= [(70,000 - 14,000)/40,000]*4,000= $5,600