A three-year-old machine has a cost of $31,000, an estimated residual value of $1,000, and an estimated useful life of five years. The company uses straight-line depreciation. Calculate the net book value at the end of the third year.

A three-year-old machine has a cost of $31,000, an estimated residual value of $1,000, and an estimated useful life of five years. The company uses straight-line depreciation.

Calculate the net book value at the end of the third year.

 

Explanation:

Machinery (original cost)	$	31,000
Accumulated depreciation at end of third year
Depreciation expense = ($31,000 cost − $1,000 residual value) × 1 / 5 = $6,000
Accumulated depreciation = $6,000 annual depreciation expense × 3 yrs =		18,000
Net book value at the end of the third year	$	13,000