On January 1, 2018, Sanderson, Inc. acquired a machine for $1,110,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $91,000. What is the book value of the machine at the end of 2019 if the company uses the straight-line method of depreciation?

Question

Quizplus · Accepted Answer

The straight-line method of depreciation calculates equal depreciation expenses for each year of the asset's useful life. The formula for straight-line depreciation is: (Cost of the asset - Residual value) / Useful life. Here, ($1,110,000 - $91,000) / 5 = $203,800 annual depreciation. After two years (end of 2019), the total depreciation is $203,800 * 2 = $407,600. The book value at the end of 2019 is the cost of the asset minus the accumulated depreciation: $1,110,000 - $407,600 = $702,400.