A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts were produced. In the second year, production increased to 19,000 units. Using the units-of-production method, what is the book value of the machine at the end of the second year?
A) $108,400.
B) $144,400.
C) $81,600.
D) $190,000.
E) $180,000.
A) $108,400.
Explanation: Depreciation Expense = [(Cost - Salvage Value)/Estimated Useful Life in Units] *
Units Produced
Depreciation per unit = ($190,000 - $10,000)/75,000 units = $2.40 per unit
Accumulated Depreciation = $2.40 * (15,000 + 19,000) = $81,600
Book Value = Cost - Accumulated Depreciation = $190,000 - $81,600 = $108,400
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