Straight-Line and Units-of-Production Methods Assume that Sample Company purchased factory equipment on January 1, 2010, for $60,000. The equipment has an estimated life of five years and an estimated residual value of $6,000. Sample’s accountant is considering whether to use the straight-line or the units-of-production method to depreciate the asset. Because the company is beginning a new production process, the equipment will be used to produce 10,000 units in 2010, but production subsequent to 2010 will increase by 10,000 units each year.
Calculate the depreciation expense, accumulated depreciation, and book value of the equipment under both methods for each of the five years of its life. Would the units-of production method yield reasonable results in this situation? Explain.