Question

Supreme Fitness Club uses straight-line depreciation for a machine costing $28,300, with an estimated four-year life and a $2,850 salvage value. At the beginning of the third year, Supreme determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,400 salvage value. (1) Compute the machine's book value at the end of its second year. (Omit the "$" sign in your response.) Book value (2)Compute the amount of depreciation for each of the final three years given the revised estimates. (Do not round your intermediate calculations. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.) Amount of depreciation Year 3 Year 4 Year 5

Answer 1

Cost of machine = $28,300

Salvage value = $2,850

Useful life = 4 years

Depreciation per year = ( Cost of machine - Salvage value ) / Useful life = ( $28,300 - $2,850 ) / 4 years = $6,362.5 per year.

Depreciation for 2 years = Depreciation per year * 2 = $6362.5 * 2 = $12,725

1. Book value at the end of its second year = Cost of machine - Depreciation for 2 years = $28,300 - $12,725 = $15,575

2. Revised estimates

Remaining useful life = 3 years

Book value = $15,575

Revised Salvage value = $2,400

Depreciation per year as per revised estimates = ( Book value - Revised salvage value ) / Remaining useful life = ( $15,575 - $2,400 ) / 3 years = $4,392 per year

Year 3 depreciation = $4,392

Year 4 depreciation = $4,392

Year 5 depreciation = $4,391.