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A machine costing $214,200 with a four-year life and an estimated $19,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 488,000 units of product during its life. It actually produces the following units: 123,200 in Year 1, 123,600 in Year 2, 120,900 in Year 3, 130,300 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate—this difference was not predicted. (The machine cannot be depreciated below its estimated salvage value.)



Answer :

The appropriate journal entries for year 4 depreciation is:

Dr. depreciation                      $52,210

Cr. Accumulated depreciation                 $52,210

What is depreciation?

Depreciation is the gradual systematic allocation of the cost of asset over its useful years, the fact that the machine in this case would be used for 4 years means that its initial cost needs to be allocated over the 4 years.

Depreciation(straight-line method)=(cost-salvage value)/useful life

Depreciation(straight-line method)=( $214,200-$19,000)/4=$48,800 per year

Depreciation rate per unit=($214,200-$19,000)/488000

Depreciation rate per unit=$0.40

Depreciation in year 4=130,300*$0.40

Depreciation in year 4=$52,210

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Additional information provided by the student in the comment section:

How do I record the 4th year?

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