Question

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $43,500. The machine’s useful life is estimated at 10 years, or 385,000 units of product, with a $5,000 salvage value. During its second year, the machine produces 32,500 units of product.

Determine the machine’s second-year depreciation and year end book value under the straight-line method.

	Straight-Line Depreciation Choose Numerator: / Choose Denominator: = Annual Depreciation Expense / = Depreciation expense / = 0 Year 2 Depreciation Year end book value (Year 2)

Answer 1

/ Straight-Line Depreciation Choose Numerator: Depreciable Cost $38,500 Choose Denominator: Useful life year 10 Annual Depreciation Expense Depreciation Expense $3,850 Year-2 Depreciation Year end book value (Year 2) $3,850 $35,800 Workings: Under straight-line method, Annual depreciation expense = (Capitalized cost - Residual value) / Useful life of the asset Capitalized cost Less: Residual (or Salvage) value Depreciable cost Useful life of the asset, years Annual depreciation expense $43,500 $5,000 $38,500 10 $3,850 [$38500 / 10 years] Unless the asset is disposed off in between any year during its useful life, this depreciation expense will continue to be the same each year of its useful life. As a result, book value at the end of year-2 = $43500 - ($3850 x 2 years) = $43500 - $7700 = $35800.