Question

On January 1, 2015, Anodel Inc. acquired a machine for $1,000,000. The estimated useful life of the asset is 5 years. The residual value at the end of 5 years is estimated to be $50,000. What is the book value of the machine at the end of 2016, if the company uses straight-line depreciation method.

a. $550,000
b. $570,000
c. $620,000
d. $600,000

Answer 1

c. $620,000

Step-by-step explanation:

The computation of the book value is shown below:

The depreciation expense would be

= (Acquiring value of the machine - estimated residual value) ÷ (estimated useful life)

= ($1,000,000 - $50,000) ÷ (5 years)

= ($950,000) ÷ (5 years)

= $190,000

The depreciation should be charged for 2 years so, the accumulated depreciation is

= $190,000 × 2 years

= $380,000

Now the book value

= Acquiring value of the machine - accumulated depreciation

= $1,000,000 - $380,000

= $620,000