Question

A computer was purchased for $2 000. After three years of use it was sold at $500. Using straight line depreciation, what was the computer's book value at the end of year 2?

Select one:

a. $0

b. $1 500

c. $500

d. $1 000

e. $2 000

Answer 1

To calculate the computer's book value at the end of year 2 using straight line depreciation, subtract two years' worth of depreciation from the original cost. The annual depreciation is $500, so after two years, the book value is $1,000.

Step-by-step explanation:

The question deals with the calculation of the book value of a computer after two years using straight line depreciation. The original cost of the computer is $2,000 and it was sold after three years for $500. To find the book value at the end of year 2, we calculate the annual depreciation and subtract it for each year from the original cost.

First, determine the total depreciation over three years, which is the original cost minus the final selling price: $2,000 - $500 = $1,500. The annual depreciation is $1,500 divided by 3 years, which equals $500 per year. At the end of year 2, two years' worth of depreciation has been accumulated, which is 2 * $500 = $1,000. Therefore, the book value at the end of year 2 is the original cost minus the accumulated depreciation: $2,000 - $1,000 = $1,000.

The correct answer is d. $1,000.