A factory machine was purchased for $140,000 on January 1, 2017. It was estimated that it would have a $28,000 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 2017 was 4,000 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2017 would be
A)$14,000.
B)$22,400.
C)$28,000.
D)$11,200.

Question

Quizplus · Accepted Answer

The first step is to calculate the depreciation rate per machine hour.

Depreciation rate per machine hour = (Purchase price - Salvage value) / Estimated total machine hours
= ($140,000 - $28,000) / 40,000 hours
= $3.30 per hour

Next, we can calculate the depreciation expense for 2017 by multiplying the depreciation rate per hour by the actual number of hours run in 2017.

Depreciation expense in 2017 = Depreciation rate per hour x Actual hours run in 2017
= $3.30 x 4,000 hours
= $13,200

Therefore, the correct answer is D) $11,200.

A Factory Machine Was Purchased for $140,000 on January 1