A factory machine was purchased for $125,000 on January 1, 2012. It was estimated that it would have a $25,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2012. If the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2012 would be Group of answer choices

Annual depreciation 2012= $10,000

Explanation:

Giving the following information:

Purchase price= $125,000

Salvage value= $25,000

Useful life in hours= 40,000

The company ran the machine for 4,000 actual hours in 2012.

To calculate the depreciation expense in 2012, we need to use the following formula:

Annual depreciation= [(original cost - salvage value)/useful life of production in hours]*hours operated

Annual depreciation= [(125,000 - 25,000)/40,000]*4,000

Annual depreciation= 2.5*4,000

Annual depreciation= $10,000