Question

On January​ 1, 2018,​ Sanderson, Inc. acquired a machine for​ $1,110,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be​ $91,000. What is the book value of the machine at the end of 2019 if the company uses the​ straight-line method of​ depreciation?

Answer 1

$702,400

Step-by-step explanation:

Data provided in the question:

Cost of the machine acquired = $1,110,000

Useful life of the machine = 5 years

Residual value = $91,000

Method of depreciation is straight line

Now,

Annual depreciation =
`\frac{\textup{(Cost price - Residual value)}}{\textup{Useful life}}`

or

⇒ Annual depreciation =
`\frac{\textup{(1,110,000 - 91,000)}}{\textup{5}}`

or

⇒ Annual depreciation = $203,800

Book value = Cost of the machine - (Total depreciation in the given period)

now,

Duration of period from January 1, 2018 to end of 2019 = 2 years

Therefore,

The total depreciation = 2 × Annual depreciation

= 2 × $203,800

= $407,600

Hence,

Book value at the end of 2019 = $1,110,000 - $407,600

or

Book value at the end of 2019 = $702,400