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5 November, 21:05

Cleveland Corporation acquired a machine for $42,000 and has recorded depreciation for two years using the straight line method over a 5 year life and $7,000 residual value. At the start of the third year of use, Cleveland revised the estimated useful life to a total of 10 years. Estimated residual value declined to $0. What is the book value of the machine at the end of 2 full years of use

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  1. 5 November, 21:14
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    The book value of the machine at the end of year 2 is $35,000

    Explanation:

    Straight line method depreciates the asset on its useful life after deducting salvage value from the cost of the asset.

    Depreciation per year = (Cost of Machine - Residual Value) / Useful life

    Depreciation per year = ($42,000 - $7,000) / 10 years

    Depreciation per year = $3,500 per year

    Book value of machine at the end of year 2 = $42,000 - ($3,500 x 2)

    Book value of machine at the end of year 2 = $42,000 - $7,000

    Book value of machine at the end of year 2 = $35,000
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