On January 1, 2019, XYZ Company purchased a piece of equipment to be used in its

Question

On January 1, 2019, XYZ Company purchased a piece of equipment to be used in its manufacturing operations. The equipment was assigned an $8,000 residual value and is expected to produce a total of 90,000 units over its life. During 2019, the equipment was used to produce 18,000 units. At December 31, 2019, the book value of the equipment was $62,6e0. XYZ Company is depreciating the equipment using the units-of-production depreciation method. Calculate the original cost paid by XYZ Company to purchase the equipment on January 1, 2019. Do not use decimals in your answer

Explanation / Answer

Book value of the assets in 2019 = Residual value + ((Cost of the machine - Residual value) / Total expected units to be produced * (total expected units to be produced - units produced in 2019))

Assume cost of the machine as 'x', then

$62,600 = $8,000 + (((x-$8,000) / 90,000) * (90,000 - 18,000))

$62,600 = $8,000 + ((x-$8,000) / 90,000 * 72,000)

$62,600 - $8,000 = (x-$8,000) / 90,000*72,000

$54,600 = (x-$8,000)/90,000*72,000

$54,600*90,000/72,000 = x-$8,000

$68,250 + $8,000 = x

$76,250 = x

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