On January 1, Chaucer Corporation purchased a $51,000 machine. The estimated life of the machine was three

Question:

On January 1, Chaucer Corporation purchased a $51,000 machine. The estimated life of the machine was three years, and the estimated salvage value was $6,000. The machine had an estimated useful life in productive output of 60,000 units. Actual output for the first two years was: year 1, 22,000 units; year 2, 19,000 units.

Required:

1. Compute the amount of depreciation expense for the first year, using each of the following methods:

a. Straight-line

b. Units-of-production

2. What was the book value of the machine at the end of the first year, assuming that straight-line depreciation was used?

3. If the machine is sold at the end of the second year for $17,500, how much should the company report as a gain or loss (assuming straight-line depreciation)?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...