Question

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $86,800. The machine's useful life is estimated at 20 years, or 404,000 units of product, with a $6,000 salvage value. During its second year, the machine produces 34,400 units of product.

Determine the machine’s second-year depreciation and year end book value under the straight-line method.

Straight-Line Depreciation
Choose Numerator:	/	Choose Denominator:	=	Annual Depreciation Expense
	/		=	Depreciation expense
	/		=
Year 2 Depreciation
Year end book value (Year 2)

Answer 1

Cost of equipment = $86,800

Residual value = $6,000

Estimated useful life = 20 years

Annual depreciation expense = (Cost of equipment - Residual value)/Estimated useful life

= (86,800 - 6,000)/20

= 80,800/20

= $4,040

Machine’s second-year depreciation = $4,040

Accumualted depreciation for 2 years = Annual depreciation expense x 2

= 4,040 x 2

= $8,080

Year end book value (year 2) = Cost of equipment - Accumualted depreciation for 2 years

= 86,800 - 8,080

= $78,720