Question

A machine that cost $400,000 has an estimated residual value of $40,000 and an estimated useful life of four years. The company uses straight-line depreciation. Calculate its book value at the end of year 3

Answer 1

Answer:

Book value at the end of year 3 of the machine: $130,000

Explanation:

The company uses straight-line depreciation method, Depreciation Expense each year is calculated by following formula:

Depreciation Expense = (Cost of machine − Residual Value )/Useful Life = ($400,000-$40,000)/4 = $90,000

At the end of year 3, Accumulated depreciation = $90,000 x 3 = $270,000

Book value of the machine is: the machine's cost minus the machine's accumulated depreciation.

At the end of year 3, Book value of the machine = $400,000 - $270,000 = $130,000