A three-year-old machine that has a cost of $51,100, an estimated residual value
ID: 2447279 • Letter: A
Question
A three-year-old machine that has a cost of $51,100, an estimated residual value of $2,100, and an estimated useful life of 35,000 machine hours. The company uses units-of production depreciation and ran the machine 5,000 hours in year 1; 7,150 hours in year 2; and 8,400 hours in year 3.
Calculate the net book value at the end of the third year.
A three-year-old machine that has a cost of $51,100, an estimated residual value of $2,100, and an estimated useful life of 35,000 machine hours. The company uses units-of production depreciation and ran the machine 5,000 hours in year 1; 7,150 hours in year 2; and 8,400 hours in year 3.
Calculate the net book value at the end of the third year.
Explanation / Answer
Depreciation = cost of the machine - estimated value / no of useful life of the asset
= $51,100 - 2,100 / 35000 machine hours
= $1.4 / machine hour
Year 1 Year 2 Year 3
Depreciation
Machine hours run 5000 7150 8400
Depreciation $ 7000 10010 11760
( $1.4 hour x no of machine hours run)
Net book value Year 1 Year 2 Year 3
Cost of the machine $ 51,100 $44,100 $34090
less depreciation $ 7,000 $10010 $11760
Net book value $ 44,100 $34090 $22330
The net book value at the end of the third year is $22330.
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