Question

A machine that cost $500,000 has an estimated residual value of $25,000 and an estimated useful life of five years. The company uses straight-line depreciation. Calculate its book value at the end of year 4. (Do not round intermediate calculations.)

Answer 1

$120,000

Step-by-step explanation:

Book value in year 1 = Cost of asset - Depreciation expense of year 1

Book value in year in subsequent years = previous book value - that year's depreciation expense

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

( $500,000 - $25,000 ) / 5 = $95,000

The depreciation expense each year would be $95,000.

Book value in year 1 = $500,000 - $95,000 = $405,000

Book value in year 2 =$405,000 - $95,000 = $310,000

Book value in year 3 = $310,000 - $95,000 = $215,000

Book value in year 4 =$215,000 - $95,000 = $120,000

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