Question

On January 1, Year 1, Scott Company purchased a new machine for $220,000. The machine is expected to have an eight-year life and a $20,000 salvage value. On January 1, Year 3, Scott sold the equipment for $180,000.

Do not use dollar signs ($), commas (,) or decimal points (.) in your answers.


1. Calculate the annual straight-line depreciation on the machine. Blank 1. Fill in the blank, read surrounding text.


2. What is the machine's book value at the end of Year 2 after the annual depreciation has been recorded? Blank 2. Fill in the blank, read surrounding text.


3. Calculate the gain or loss on the sale of the machine. (use a minus sign to indicate a loss.) Blank 3. Fill in the blank, read surrounding text.

Answer 1

1. Annual straight-line depreciation = 25000

2. Machine's book value at the end of Year 2 = 170000

3. Gain on the sale of the machine = 10000

Explanation:

1. Let's review the information provided to us to answer the questions correctly:

Price of the new machine purchased by Scott Company = 220,000

Expected life of the machine = 8 years

Salvage value = 20,000

Price of sale of the machine after 2 years of usage = 180,000

2. Calculate the annual straight-line depreciation on the machine.

Annual depreciation = (Price of purchase of the new machine - Salvage value)/Expected life of the machine

Replacing with the real values, we have:

Annual depreciation = (220,000 - 20,000)/8

Annual depreciation = 200,000/8

Annual straight-line depreciation = 25000

3. What is the machine's book value at the end of Year 2 after the annual depreciation has been recorded?

Machine's book value at the end of Year 2 = Price of the new machine purchased by Scott Company - 2 * Annual straight-line depreciation

Replacing with the real values, we have:

Machine's book value at the end of Year 2 = 220,000 - 2 * 25,000

Machine's book value at the end of Year 2 = 220,000 - 50,000

Machine's book value at the end of Year 2 = 170000

4. Calculate the gain or loss on the sale of the machine.

Gain or loss on the sale of the machine = Price of sale of the machine after 2 years of usage - Machine's book value at the end of Year 2

Replacing with the real values, we have:

Gain or loss on the sale of the machine = 180,000 - 170,000

Gain on the sale of the machine = 10000