Question

A machine that cost $740,000has an estimated residual value of $20,000 and an estimated useful life of eight years. The company uses straight-line depreciation. Calculate its book value at the end of year 7.

Answer 1

The depreciable cost of the machine is:

$740,000 - $20,000 = $720,000

Since the company uses straight-line depreciation, the annual depreciation expense is:

$720,000 ÷ 8 years = $90,000 per year

So, after 7 years, the accumulated depreciation would be:

$90,000 × 7 = $630,000

At the end of year 7 would be:

$740,000 - $630,000 = $110,000

Therefore, the machine's book value at the end of year 7 is $110,000.