Question

Julius Company bought a machine on January 1, 2016. The machine cost $144,000 and had an expected salvage value of $24,000. The life of the machine was estimated to be 5 years. Using straight line depreciation, the book value of the machine at the beginning of the third year would be: ___________

Answer 1

$96,000

Step-by-step explanation:

Data provided in the question:

Cost of the machine purchased on January 1, 2016 = $144,000

Expected salvage value = $24,000

Estimated life of the machine = 5 years

Now,

Using the straight line method of depreciation

Annual depreciation =
`\frac{\textup{Cost - Salvage value}}{\textup{Useful life}}`

or

Annual depreciation =
`\frac{\textup{144,000 - 24,000}}{\textup{5}}`

or

Annual depreciation = $24,000

Now,

the accumulated depreciation till beginning of the third year

= Depreciation for the two years

= Annual depreciation × 2

= $24,000 × 2

= $48,000

Therefore,

The book value at the beginning of the third year

= Cost - Accumulated depreciation

= $144,000 - $48,000

= $96,000