Answer:
<u>1. Annual straight-line depreciation = 25000</u>
<u>2. Machine's book value at the end of Year 2 = 170000</u>
<u>3. Gain on the sale of the machine = 10000</u>
Step-by-step explanation:
1. Let's review the information provided to us to answer the questions correctly:
Price of the new machine purchased by Scott Company = 220,000
Expected life of the machine = 8 years
Salvage value = 20,000
Price of sale of the machine after 2 years of usage = 180,000
2. Calculate the annual straight-line depreciation on the machine.
Annual depreciation = (Price of purchase of the new machine - Salvage value)/Expected life of the machine
Replacing with the real values, we have:
Annual depreciation = (220,000 - 20,000)/8
Annual depreciation = 200,000/8
<u>Annual straight-line depreciation = 25000</u>
3. What is the machine's book value at the end of Year 2 after the annual depreciation has been recorded?
Machine's book value at the end of Year 2 = Price of the new machine purchased by Scott Company - 2 * Annual straight-line depreciation
Replacing with the real values, we have:
Machine's book value at the end of Year 2 = 220,000 - 2 * 25,000
Machine's book value at the end of Year 2 = 220,000 - 50,000
<u>Machine's book value at the end of Year 2 = 170000</u>
4. Calculate the gain or loss on the sale of the machine.
Gain or loss on the sale of the machine = Price of sale of the machine after 2 years of usage - Machine's book value at the end of Year 2
Replacing with the real values, we have:
Gain or loss on the sale of the machine = 180,000 - 170,000
<u>Gain on the sale of the machine = 10000</u>
