Problem 2 Pearson Company bought a machine on December 1, 2017. The machine cost

Question

Problem 2 Pearson Company bought a machine on December 1, 2017. The machine cost $180,000 value of $30,000. Pearson estimated the life of machine to be5 and had an expected salvage years What is the annual depreciation using straight-line depreciation? ANNuML DEFRECATION E ANN 7 What will be the machine's book valbe be after 4 years? If Pearson never revises the depreciation and sells the equipment for $20,000 on December , 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? Version 1 Page 8

Explanation / Answer

Solution:

Step 1: Calculate net book value of asset for three year (before revision of Depreciation):

                Cost of the asset =             $180,000

                Less: Accumulated depreciation                =             $90,000

                [($180,000-$30,000) * 3/5]

                Net Book Value =             $90,000

Step 2: Calculate depreciation charge using revised useful life:

                Revise Dep. =             Net Book Value/Revise Useful life

=             $90,000/5

=             $18,000

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