Question

North Company purchased a machine for $180,000 on January 1, 2017. The machine is expected to have a four-year life, with a residual value of $20,000 at the end of four years. Using the straight-line method, depreciation for 2014 and book value at December 31, 2018 would be

$40,000 and $80,000

$45,000 and $90,000

$45,000 and $70,000

$40,000 and $100,000

Answer 1

The year for depreciation cannot be 2014 and it has to be 2017 or 2018. Since the depreciation remains the same under straight line the amount will be common for both the years.

Depreciation= Purchase cost- Residual Value/ Useful life

Purchase cost= $180,000

Residual Value= $20,000

Number of years= 4

Depreciation= (180000-20000)/4

=$40,000

As on Decmber 31, 2017 book value of machine will be =$180,000-$40,000

=$140,000

As on December 31, 2018 book value of machine will be= $140,000-40,000

=$100,000

Hence the correct answer is 4th Option. Depreciation $40,000; Book Value $100,000