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13 August, 16:04

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

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  1. 13 August, 19:42
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    c. $620,000

    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
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