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Answer :
Given information:Machine purchased on January 1, 2018 for $40,400,000 Hours expected to use over six years = 34,000 Residual value of machine at end of the sixth year = $50,000 Hours used in 2018 = 4,600 Hours used in 2019 = 6,000 We are to determine the book value of the machine at the end of 2019 if the company uses the units-of-production method of depreciation.
To compute the book value of the machine, we will first determine the rate of depreciation using the units-of-production method. This method calculates depreciation on the basis of usage of the machine.In other words, we can determine the depreciation cost per unit hour as follows:Depreciation cost per unit hour = (Cost of machine - Residual value)/Total estimated unit hours= ($40,400,000 - $50,000)/34,000 = $1,184.71 per unit hour Now, we can calculate the depreciation expense for the machine for 2018 and 2019 as follows:
2018 depreciation expense = Depreciation cost per unit hour × Number of hours used in 2018= $1,184.71 × 4,600 = $5,447,686.002019 depreciation expense = Depreciation cost per unit hour × Number of hours used in 2019= $1,184.71 × 6,000 = $7,108,260.00 The total depreciation expense for 2018 and 2019 is:Total depreciation expense = $5,447,686.00 + $7,108,260.00= $12,555,946.00 Therefore, the book value of the machine at the end of 2019 can be determined as follows:
Book value of machine = Cost of machine - Depreciation expense- Accumulated depreciation= $40,400,000 - $12,555,946.00- ($1,184.71 × 10,600)= $40,400,000 - $12,555,946.00 - $12,555,946.00= $15,288,108.00 Therefore, the book value of the machine at the end of 2019 is $15,288,108.00.Answer: $15,288,108.00
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