Spears Corporation Bought a Machine on January 1, 2011

question 73

Multiple Choice

Spears Corporation bought a machine on January 1, 2011. In purchasing the machine, the company paid $50,000 cash and signed an interest-bearing note for $100,000. The estimated useful life of the machine is 5 years, after which time the salvage value is expected to be $15,000. The machine is expected to produce 67,500 widgets during its useful life. Given this information, if 10,000 widgets are produced in 2012, how much depreciation should be recorded in 2012, assuming that Spears Corporation uses the units-of-production depreciation method?

• A) $22,222
• B) $20,000
• C) $30,000
• D) $40,000

---

Definitions:

Economic Profit

The split between total revenue generation and total cost accrual, encompassing both declared and understood costs.

Long-Run Adjustments

Adjustments that firms make over a period where all inputs can be varied, and there are no fixed factors of production.

Industry Supply

The total output of a particular good or service that all producers in the market are willing and able to sell at a given price level, over a specific time period.

Short-Run Market Supply

The total quantity of a good or service that producers are willing and able to sell at various prices over a short period, where some production factors are fixed.