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

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