Monday, 17 March 2014

The cost of the two-year-old machine is $220,000. It has an estimated residual value of $30,000, and has an estimated useful life of four years. The company uses straight-line depreciation.


The cost of the two-year-old machine is $220,000. It has an estimated residual value of $30,000, and has an estimated useful life of four years. The company uses straight-line depreciation.


Required:
Calculate the book value of the machine at the end of second year. (Omit the "$" sign in your response.)
 
  Book value
$  
 

Explanation:
 


  Machinery (original cost)
$
220,000  
  Accumulated depreciation at end of year 2


    Depreciation expense = ($220,000 cost – $30,000 residual value) ×
      1/4 years = $47,500


    Accumulated depreciation = $47,500 annual depreciation expense × 2 yrs =

95,000  



  Book value at the end of the second year
$
125,000  




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