Home Health Care, Inc. purchased a sonogram machine for $400,000. Its functional
ID: 2651468 • Letter: H
Question
Home Health Care, Inc. purchased a sonogram machine for $400,000. Its functional life is 6 years and its salvage value will be 10% of its purchase price. Rounding to the nearest dollar, make a table and fill in the values for t = 0, 1, 2, 3, 4, 5, 6 showing (a) year t. (b) the straight-line (SL) depreciation amount for year t, (c) the book value in year t using SL depreciation, (d) the double declining balance amount in year t, (e)the book value in year t using DDB depreciation. Using your table, answer the following questions, formatting your answers without symbols or decimal places but with comma separators (ex 999, 999). What is the book value in year 3 using straight line depreciation?Explanation / Answer
Purchase price of a machine = $400,000
Life of the machine = 6 years
Salvage value of the machine = Purchase price × 10% = $400,000 × 10% = $40,000
Straight-line depreciation of machine in each year = (Purchase price – Salvage value) ÷ Life
= (400,000 – 40,000) ÷ 6
= 360,000 ÷6
= 60,000
Total depreciation after year 3 = Depreciation in each year × 3
= 60,000 × 3
= 180,000
Book value of the machine in year 3 = Purchase price – Total depreciation
= 400,000 – 180,000
= 220,000
Answer: - Book value in year 3 is 220,000.
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