Question

Apex Fitness Club uses straight-line depreciation for a machine costing $23,860. with an estimated four-year life and a $2,400 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 $2,000 salvage value. Compute (1) the machine's book value at the end of its second year and (2) the amount of depreciation for each of the final three years given the revised estimates. (Negative amount should be indicated by a minus sign.)

Answer 1

The machine's book value at the end of the second year is $13,100. The amount of depreciation for the final three years is $11,100, $7,100, and $5,100 respectively.

Step-by-step explanation:

To compute the machine's book value at the end of its second year, we need to calculate the annual depreciation. Since the machine has a four-year life, the annual depreciation will be the difference between the initial cost and the salvage value, divided by the number of years.

The annual depreciation is (23860 - 2400) / 4 = $5380. Therefore, the book value at the end of the second year can be calculated by subtracting two times the annual depreciation from the initial cost: 23860 - (2 * 5380) = $13100.

To calculate the amount of depreciation for each of the final three years given the revised estimates, we subtract the salvage value from the book value at the end of each year. The revised salvage value for the machine is $2000.

For the third year, the depreciation would be 13100 - 2000 = $11100. For the fourth year, the depreciation would be 9100 - 2000 = $7100. And for the fifth and final year, the depreciation would be 7100 - 2000 = $5100.