Question

On January 1, 2021, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2021 and 2022, 25,000 and 84,000 units, respectively, were produced. Required: Compute depreciation for 2021 and 2022 and the book value of the drill press at December 31, 2021 and December 31, 2022, assuming the units-of-production method is used. (Round depreciation per unit to 2 decimal places.)

Answer 1

In 2021, the depreciation expense is $1500 and the book value is $34,500.

In 2022, the depreciation expense is $5040 and the book value is $30.960.

The units of production depreciation method depreciates an asset based on the output of the asset in a given period.

units of production = (output in a given year / total estimated output) x (cost of the asset  -salvage value)

Book value is the cost of the asset or the carrying value of the asset less the depreciation.

2021 depreciation = (25,000 / 500,000) x ($36,000 - $6000) = $1500

Book value = $36,000 - $1500 = $34,500

2022 depreciation = (84,000 / 500,000) x ($36,000 - $6000) = $5040.

Book value = $36,000 - $5040 = $30,960

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