On January 1, 2016, Martini, Inc. acquired a machine for $1,030,000…

Question:

On January 1, 2016, Martini, Inc. acquired a machine for $1,030,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $87,000. What is the book value of the machine at the end of 2017 if the company uses the straight-line method of depreciation?

Answer:

Straight Line Depreciation per year = (Cost – Residual Value) / Useful Life
Straight Line Depreciation per year = ($1,030,000 – $87,000) / 5
Straight Line Depreciation per year = $188,600

Accumulated Depreciation at the end of 2017 = Depreciation per year * No. of years used
Accumulated Depreciation at the end of 2017 = $188,600 * 2
Accumulated Depreciation at the end of 2017 = $377,200

Book Value at the end of 2017 = Cost – Accumulated Depreciation at the end of 2017
Book Value at the end of 2017 = $1,030,000 – $377,200
Book Value at the end of 2017 = $652,800

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