Problem 2: Pearson Company bought a machine on December 1, 2017. The machine cos
ID: 2549413 • Letter: P
Question
Problem 2: Pearson Company bought a machine on December 1, 2017. The machine cost $180,000 and had an expected salvage value of $30,000. Pearson estimated the life of machine to be 5 years. What is the annual depreciation using straight-line depreciation? What will be the machine's book value be after 4 years? If Pearson never revises the depreciation and sells the equipment for $20,000 on December 1, 2022, how much will it record for a gain or a loss? Optional Bonus Points: Pearson decides to revise its depreciation after three years. It decides it will get a total of 8 years out of the machine, and the salvage value at the end of that time will be S10,000. What is the new annual depreciation?Explanation / Answer
Straight Line method
Annual Depreciation = (Machine cost - salvage value)/ useful years
Annual Depreciation= (180000 - 30000)/ 5
= (150000)/ 5
= 30000
Annual depreciation = 30000
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Straight Line Depreciation Schedule
Year
Annual Depreciation
Accumulated Depreciation
Book value
1
30000
30000
150000
2
30000
60000
120000
3
30000
90000
90000
4
30000
120000
60000
5
30000
150000
30000
Book value of asset after 4 year = 60000
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Book value on Dec 1 2022 is 30000, if the company sells it for 20000, it will result in loss of (30000 – 20000 = $10000)
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Hope this answer your query.
Feel free to comment if you need further assistance. J
Straight Line Depreciation Schedule
Year
Annual Depreciation
Accumulated Depreciation
Book value
1
30000
30000
150000
2
30000
60000
120000
3
30000
90000
90000
4
30000
120000
60000
5
30000
150000
30000
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