Question

The Baldwin Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $4,090,000 (1/10th of its original cost). What will be the book value of this purchase (excluding all other Plant and Equipment) after its first year of use

Answer 1

$38,446,000

Step-by-step explanation:

Straight line method charges a fixed amount of depreciation for the period the asset is in used in the business

Depreciation expense = (Cost - Residual Value) ÷ Estimated useful life

therefore,

Depreciation expense = $2,454,000

Book Value = Cost - Accumulated Depreciation

therefore for first year,

Book Value = $40,900,000 - $2,454,000 = $38,446,000

Conclusion

The book value of this purchase (excluding all other Plant and Equipment) after its first year of use is $38,446,000