Question

Justice, Inc. purchased a machine for $15,000 two years ago. The machine had no residual value and had an estimated useful life of 10 years. If the company uses the straight-line depreciation method, calculate the current book value of the machine.

A) $12,000
B) $3,000
C) $16,500
D) $15,000

Answer 1

The correct answer is option a. The current book value of the machine using straight-line depreciation is $12,000, which is calculated by subtracting two years of depreciation from the original cost.

Step-by-step explanation:

The subject of the question is concerned with calculating the current book value of a machine using the straight-line depreciation method. Given the purchase price of the machine was $15,000 and it has no residual value, with an estimated useful life of 10 years, the annual depreciation expense is calculated by dividing the purchase price by the useful life (i.e., $15,000/10 years = $1,500 per year).

After two years, the accumulated depreciation would be 2 years * $1,500/year = $3,000. Subtracting the accumulated depreciation from the purchase price gives the current book value: $15,000 - $3,000 = $12,000.