Question

Supreme Fitness Club uses straight-line depreciation for a machine costing $28,150, with an estimated four-year life and a $2,750 salvage value. At the beginning of the third year, Supreme determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,300 salvage value. (1) Compute the machine’s book value at the end of its second year.

Answer 1

Answer:

1. $15,450

2. $4,383

Explanation:

1. Computation to determine the machine’s book value at the end of its second year

First step is to calculate the Annual depreciation

Annual depreciation= ($28,150 - $2,750) / 4

Annual depreciation=$25,400/4

Annual depreciation= $6,350

Now let calculate the machine’s book value at the end of its second year

Machine’s book value=$28,150 - ($6,350 *2)

Machine’s book value=$28,150 -$12,700

Machine’s book value=$15,450

Therefore the machine’s book value at the end of its second year will be $15,450

2. Calculation to determine the amount of depreciation for each of the final three years given the revised estimated.

Depreciation for each of the final three years=

($15,450 - $2,300) / 3

Depreciation for each of the final three years=$13,150/3

Depreciation for each of the final three years=

= $4,383

Therefore the amount of depreciation for each of the final three years given the revised estimated will be $4,383