Question

Apex Fitness Club uses straight-line depreciation for a machine costing $24,600, with an estimated four-year life and a $2,500 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,050 salvage value.Compute (1) the machine's book value at the end of its second year. (2) the amount of depreciation for each of the final three years given the revised estimated.

Answer 1

machine's book value at the end of its second year = $13550

the amount of depreciation for each of the final three years = $3833.33

Explanation:

machine costing $24,600

4 year salvage value = $2,500

3 year salvage value = $2,050

to find out

machine's book value at the end of its second year and the amount of depreciation for each of the final three years

solution

first w calculate depreciate basis = machine costing - 4 year salvage value

depreciate basis = $24600 - $2500 = $22100

and depreciate = $22100 / 4 = $5525 per year

so after 2 year depreciate value is 2 × $5525 = $11050

now we can say machine's book value at the end of its second year = machine costing - after 2 year depreciate value

machine's book value at the end of its second year = $24,600 - $11050

machine's book value at the end of its second year = $13550

and the amount of depreciation for each of the final three years = ( book value - salvage value ) / 3

the amount of depreciation for each of the final three years = ( $13550 - $2,050 ) / 3

the amount of depreciation for each of the final three years = $3833.33