Question

On September 1, 2011, a company purchased a weaving machine for $239,800. The machine has an estimated useful life of 8 years and an estimated residual value of $17,800. Additionally, it is estimated that the machine would produce 740,000 bolts of woven fabric over its useful life. The company ended up selling the machine in 2018 after 1 month of use. The following budgeted and actual activity levels were provided to support your work: Budgeted Bolts Actual Bolts Year Budgeted cumulative actual cumulative 2011 20,000 20,000 35,000 35,000 2012 100,000 120,000 115,000 150,000 2013 100,000 220,000 116,000 266,000 2014 100,000 320,000 119,000 385,000 2015 100,000 420,000 120,000 505,000 2016 85,000 505,000 117,000 622,000 2017 85,000 590,000 112,000 734,000 2018 85,000 675,000 9,000 743,000 2019 65,000 740,000 n.a. total 740,000 743,000 Assuming the company uses the straight line depreciation method, select the answer below that shows the machine's net book value at 12/31/2013. If applicable, round your intermediate calculations to 3 decimals and your final answer to the nearest $1. A. $160,000 O B $175,050 OC. $157,250 O $156,550 E. $138,750

Answer 1

The machine's net book value at 12/31/2013 is calculated as follows:

It is given that depreciation is calculated on straight line method of depreciation

Depreciation p.a. = ( Cost - Salvage Value) / Estimated Useful Life

                     = ( $239,800 - $17,800) / 8 Years

                         = $222,000 / 8 Years

                         = $27,750

Date	$
9/1/2011 (Cost)	239,800
Less: Depreciation for 4 Months ($27,750 * 4/12)	(9,250)
( 9/1/2011 to 12/31/2011)
Book Value at 12/31/2011	230,550
Less: Depreciation for whole Year	(27,750)
Book Value at 12/31/2012	202,800
Less: Depreciation for whole Year	(27,750)
Book Value at 12/31/2013	$175,050

So, the machine's net book value at 12/31/2013 is $175,050

So correct answer is option (B) $175,050