Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10 years. Its market value on December 31, 2008 is $1.75 million. The firm's accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The net value of the asset that should be reported on the balance sheet is:

Question

Quizplus · Accepted Answer

The net value of the asset that should be reported on the balance sheet is the original cost of the machinery minus accumulated depreciation. The accumulated depreciation after three years would be 3 x $230,000 = $690,000. Therefore, the net value of the machinery on December 31, 2008, would be $2,300,000 - $690,000 = $1,610,000, which is closest to option B ($1.61 million). The market value of the machinery on December 31, 2008, is not relevant for calculating the net value for reporting on the balance sheet.

Trekkers Footwear Bought a Piece of Machinery on January 1