A machine, acquired for a cash cost of $6,000, is being depreciated on a straight-line basis of $900 per year. The residual value was estimated to be 10% of cost. What is the estimated useful life?
A) 5 years
B) 4 years
C) 3 years
D) 6 years

Question

Quizplus · Accepted Answer

The annual depreciation is $900.
The residual value is 10% of the cost, which is $600.
So the depreciable cost is $6,000 - $600 = $5,400.

The estimated useful life can be calculated as:
Depreciable cost / Annual Depreciation = Useful Life
$5,400 / $900 = 6 years.

Therefore, the estimated useful life of the machine is 6 years. The best choice is D.

A Machine, Acquired for a Cash Cost of $6,000, Is