On January 1, VICOM Company purchased a $68,000 machine. The estimated life of the machine was five years, and the estimated salvage value was $5,000. The machine had an estimated useful life in productive output of 75,000 units. Actual output for the first two years was: year
1, 20,000 units; year 2, 15,000 units.
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 fourth year for $15,000, how much should the company report as a gain or loss (assuming straight line depreciation)?