On January 1, year 1, Clem Corp. purchased equipment for $160,000. The equipment has a residual value of $10,000, and has a life of 100,000 hours. Clem uses the units-of-production method of depreciation. In year 1, Clem used the machine 2,000 hours, and in year 2, Clem used the machine 3,000 hours. What is the depreciation expense for year 2

4,500

Explanation:

Depreciation is the systematic allocation of the cost of an asset over its useful life period. The various method of depreciation are straight line , reducing balance , units of production etc.

Using the units of production to calculate the depreciation for year 2, we have

Cost of equipment = 160,000

Residual value = 10,000

Depreciable amount = 160,000-10,000 =150,000

Total production hours = 100,000

Production hours used in year 2 =3,000

Depreciation for year 2 = 3,000/100,000*150,000 = 4,500