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An asset costs $27,000, has a residual value of $900 and an 8,700-hour life ($3.00 per hour). Hours used are 2,100; 2,300; 2,600; then 2,400. How many hours may be depreciated in the final year?
A2,400 hours
B1,700 hours
C2,100 hours
D8,700 hours
Answer & Solution
Correct answer: B. 1,700 hours
1. The asset is fully depreciated once total hours reach the 8,700-hour useful life.
2. Hours used in years 1–3 $= 2{,}100 + 2{,}300 + 2{,}600 = 7{,}000$.
3. Remaining hours that may be depreciated $= 8{,}700 - 7{,}000 = 1{,}700$.
4. Although 2,400 hours were actually used in year 4, only 1,700 may be charged so the carrying amount does not fall below residual value.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.5.2 "Units of Production Method", p.156_
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