Question

A business purchases a car for $20,000. The machine had a life of five years, and the estimated residual value was $4,000. The business charges depreciation on the straight-line method. What was the machine's value at the end of the fourth year?

A) $8,000
B) $12,000
C) $16,000
D) $20,000

Answer 1

Using the straight-line depreciation method, the value of the car at the end of the fourth year would be $7,200. This is calculated by subtracting the accumulated depreciation over four years from the original cost of the car.

Step-by-step explanation:

The student is asking for the value of a car at the end of the fourth year using straight-line depreciation method. The initial cost of the car is $20,000, with a residual value of $4,000, over an estimated useful life of five years. The annual depreciation expense is calculated by subtracting the residual value from the cost and then dividing by the life of the asset. So, the annual depreciation is ($20,000 - $4,000) / 5 = $3,200 per year. By the end of the fourth year, the total depreciation would be $3,200 * 4 = $12,800. Therefore, the value of the car at the end of the fourth year is the cost minus the accumulated depreciation, which is $20,000 - $12,800 = $7,200.