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 machineâs 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.

Answer 1

The book value of the machine at the end of the second year is $12,630. The amount of depreciation for each of the final three years is $3,876.67.

Step-by-step explanation:

To compute the book value at the end of the second year, we need to calculate the depreciation expense for the first two years and subtract it from the initial cost of the machine. The depreciation expense per year is calculated by subtracting the salvage value from the initial cost and dividing by the estimated life of the machine. In this case, the depreciation expense per year is ($23,860 - $2,400) / 4 = $5,615. The depreciation expense for the first two years is $5,615 * 2 = $11,230. Therefore, the book value at the end of the second year is $23,860 - $11,230 = $12,630.

To calculate the amount of depreciation for each of the final three years using the revised estimates, we need to calculate the new depreciation expense per year for the remaining useful life of the machine. The new salvage value is $2,000, and the remaining useful life is three years. Therefore, the new depreciation expense per year is ($12,630 - $2,000) / 3 = $3,876.67. The amount of depreciation for each of the final three years is $3,876.67.