Pearson Company bought a machine on January 1, 2017. The machine cost $180,000 and had an expected salvage value of $30,000. The life of the machine was estimated to be 5 years. The book value of the machine at the beginning of the third year would be
A)$180,000.
B)$150,000.
C)$120,000.
D)$60,000.

Question

Quizplus · Accepted Answer

To find the book value of the machine at the beginning of the third year, we need to use the straight-line method of depreciation.

Annual depreciation = (cost - salvage value) / life of the machine
Annual depreciation = ($180,000 - $30,000) / 5 = $30,000

Book value at beginning of year 3 = cost - accumulated depreciation at the end of year 2
Accumulated depreciation at the end of year 2 = annual depreciation x 2 years = $30,000 x 2 = $60,000
Book value at beginning of year 3 = $180,000 - $60,000 = $120,000

Therefore, the correct answer is (C) $120,000.

Pearson Company Bought a Machine on January 1, 2017