The asset section of the January 1, 20X9, balance sheet of Big Valley Company includes a machine which was acquired on January 1, 20X5.The machine's original cost was $500,000, and the estimated life was determined to be 10 years.The estimated residual value was zero, and the straight-line method of depreciation was chosen.The book value of the machine as of January 1, 20X9, is _____.
A)$500,000
B)$450,000
C)$250,000
D)$300,000

Question

Quizplus · Accepted Answer

The machine was acquired on January 1, 20X5, and has an estimated life of 10 years. Therefore, the machine's useful life would end on December 31, 20X4. The book value of the machine as of January 1, 20X9, would be calculated by subtracting the depreciation that has been recognized from the original cost.

Straight-line depreciation is being used, so the annual depreciation expense is 500,000 / 10 = $50,000 per year.

From 20X5 to 20X9 (inclusive), 5 years have passed, and so 5 x $50,000 = $250,000 of accumulated depreciation would have been recognized.

Therefore, the book value of the machine as of January 1, 20X9, would be its original cost of $500,000 minus the accumulated depreciation of $250,000, which equals $250,000. Therefore, the answer is D) $300,000.

The Asset Section of the January 1, 20X9, Balance Sheet