On January 1, 2016, Martini, Inc. acquired a machine for $1,050,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $100,000. What is the book value of the machine at the end of 2017 if the company uses the straight-line method of depreciation

$670,000

Explanation:

For computing the book value, first we have to determine the depreciation expense using the straight line method which is shown below:

= (Original cost - residual value) ÷ (estimated useful life)

= ($1,050,000 - $100,000) ÷ (5 years)

= ($950,000) ÷ (5 years)  

= $190,000

In this method, the depreciation is same for all the remaining useful life

Now the book value is

= Original cost - depreciation expense × number of years

= $1,050,000 - $190,000 × 2

= $1,050,000 - $380,000

= $670,000

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