Apex Fitness Club uses straight-line depreciation for a machine costing $23,860, with an estimated four-year life and a $2,400 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,000 salvage value. Required: 1. Compute the machine’s book value at the end of its second year. 2. Compute the amount of depreciation for each of the final three years given the revised estimates.

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stokholm stokholm · Answer 1 · 2019-10-09T14:34:51+02:00

Answer:

1. Book value at end of year 2 = $13,130

2. Depreciation from year 3 for last 3 years = $3,710 each year, that is $11,130 for three years.

Explanation:

As for the provided details, we have:

Cost of machinery = $23,860

Expected life = 4 years

Salvage value = $2,400

Straight line depreciation = [tex]\frac{23,860 - 2,400}{4} = 5,365[/tex]

Under straight line method depreciation remains constant for life of asset.

Book value at end of year 2 = $23,860 - ($5,365 [tex]\times[/tex] 2) = $13,130

Thereafter in the beginning of year 3 the estimate is made to realize that the total remaining life expected is 3 years, with salvage value $2,000

Thus, depreciation from year 3 = [tex]\frac{13,130 - 2,000}{3} = 3,710[/tex]

Therefore, depreciation from year 3 to year 5 = $3,710 each year.

Total depreciation of last 3 years = $3,710 [tex]\times[/tex] 3 = $11,130