The asset section of the January 1, 20X7 balance sheet of Murphy Company includes a machine, which was acquired on January 1, 20X1. The machine's original cost was $1,000,000, 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, 20X7 is

Question

Quizplus · Accepted Answer

Using the straight-line method, the annual depreciation is calculated as ($1,000,000 - $0) / 10 = $100,000. From January 1, 20X1 (the acquisition date) to January 1, 20X7, six years have passed. Therefore, the accumulated depreciation is 6 years x $100,000 = $600,000. The book value of the machine as of January 1, 20X7 is its original cost less its accumulated depreciation, which is $1,000,000 - $600,000 = $400,000. Therefore, the correct answer is choice D.

The Asset Section of the January 1, 20X7 Balance Sheet