Question

A building was purchased for $68,000. The asset has an expected useful life of eight years and depreciation expense each year is $5,000 using the straight-line method. What is the residual value of the building?A. $13,625 B. $8,625 C. $37,000.

Answer 1

The options provided are incorrect. The correct answer is given below.

Answer:

Residual value = $28000

Step-by-step explanation:

The straight line method of charging depreciation is a method that charges a constant depreciation expense throughout the useful life of the asset. The formula to calculate the depreciation expense under the straight line method is as follows,

Depreciation expense = (Cost - Residual value) / Estimated useful life of the asset

Plugging in the values for depreciation expense, cost and estimated useful life, we can calculate the residual value to be,

5000 = (68000 - Residual value) / 8

5000 * 8 = 68000 - Residual value

40000 + Residual value = 68000

Residual value = 68000 - 40000

Residual value = $28000