Question

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New Morning Bakery is in the process of closing its operations. It sold its two-year-old bakery ovens to Great Harvest Bakery for $520,000. The ovens originally cost $712,000, had an estimated service life of 10 years, had an estimated residual value of $42,000, and were depreciated using straight-line depreciation. Complete the requirements below for New Morning Bakery.

Required:

1. Calculate the balance in the accumulated depreciation account at the end of the second year.
  

Accumulated depreciation:

Answer 1

Solution :

The formula for calculation of the annual depreciation as per straight line method of depreciation is

Annual depreciation = ( Cost of the equipment – Estimated Residual Value ) / Estimated service life  

As per the information given in the question we have

Cost of the equipment = $ 712,000 ; Estimated Residual Value = $ 42,000 ;

Estimated service life = 10 years

Applying the above information in the formula we have

= ( $ 712,000 - $ 42,000 ) / 10

= $ 670,000 / 10 = $ 67,000

Thus the Annual depreciation as per the straight line method is = $ 67,000

The balance in the accumulated depreciation account at the end of the second year = Annual depreciation as per the straight line method * No. of years of accumulation

= $ 67,000 * 2

= $ 134,000

Thus the accumulated Depreciation = $ 134,000