Question

Acme Corp purchased a new machine that is expected to be used in manufacturing for 5...

Acme Corp purchased a new machine that is expected to be used in manufacturing for 5 years for $60,000. The salvage value of the machine after 5 years is $2000. Assume the machine was purchased on the first day of the fiscal year so no partial year depreciation is needed. Using the Straight Line Depreciation Method, what is the Book Value at the end of year 3? Adapted from example on page 81 Chapter 10

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Answer #1

Solution:

From the given data first we need to find the straight line depreciation then we find the book value at the end of the year 3. These calculations are shown below:

Straight line depreciation = (Cost - Salvage value) / Useful life

= ($60,000 - $2,000) / 5

= $11,600

Straight line depreciation = $11,600

Book value at the end of the year 3 = (Book value - Accumulated depreciation)

= ($60,000 - $34,800)

= $25,200

Book value at the end of the year 3 $25,200

Working notes: Accumulated depreciation = Annual depreciation * Years of machine used

= $11,600 * 3

= $34,800

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