Multiple Choice
Depreciation is a systematic write-off of the cost of a tangible asset that is listed on the:
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8. Long Lived Assets
Depreciation: Straight Line
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ABC Company purchased a new machine on January 1, Year 1 for $44,000. The company expects the machine to last ten years. The company thinks it could sell the scrap metal from the machine for $4,000 at the end of its useful life. If the company uses the straight-line method for depreciation, what will be the net book value of the machine on December 31, Year 4?
A
$22,400
B
$24,000
C
$26,400
D
$28,000
Verified step by step guidance1
Identify the initial cost of the machine, which is $44,000, and the expected salvage value at the end of its useful life, which is $4,000.
Calculate the depreciable amount by subtracting the salvage value from the initial cost: $44,000 - $4,000 = $40,000.
Determine the useful life of the machine, which is 10 years, and use this to calculate the annual depreciation expense using the straight-line method: $40,000 / 10 years = $4,000 per year.
Calculate the total depreciation for the first four years by multiplying the annual depreciation expense by 4: $4,000 * 4 = $16,000.
Subtract the total depreciation from the initial cost to find the net book value at the end of Year 4: $44,000 - $16,000.
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