Question

The first cost of a machine is $10,000. The machine has a salvage value of $3,000. Use straight-line

depreciation to determine the book value of an asset after 3 years. The recovery period of n=4. Your

solution will be closest to:

a. $5,150

b. $4,750

c. $3,950

d. $4,225

Answer 1

ANSWER:

Accumulated depreciation after 3 years = 3 * ( (first cost - salvage value) / recovery period)

Accumulated depreciation after 3 years = 3 * ( ( 10,000 - 3,000) / 4)

Accumulated depreciation after 3 years = 3 * (7,000 / 4)

Accumulated depreciation after 3 years = 3 * 1,750

Accumulated depreciation after 3 years = 5,250

Book value = first cost - Accumulated depreciation after 3 years = 10,000 - 5,250 = 4,750

so the correct answer is option b that is $4,750.