Book Value Calculation for Machinery using Straight-Line Depreciation

Financial Accounting Calculation of Book Value

  • Company Overview

    • Company Name: Joker & Cry
    • Purchase Details:
    • Purchase Price: $76,000
    • Purchase Date: January 1, 2024
    • Useful Life: 5 years
    • Residual Value: $8,100

  • Depreciation Method

    • The depreciation method being used is the Straight-Line Method.
    • Straight-Line Depreciation Formula:
    • Depreciation Expense = (Cost of Asset - Residual Value) / Useful Life

  • Calculating Annual Depreciation Expense

    • In this scenario:
    • Cost of Asset = $76,000
    • Residual Value = $8,100
    • Useful Life = 5 years
    • Calculation:

      ext{Depreciation Expense} = \frac{(76,000 - 8,100)}{5}
    • Step-by-step:
    • Subtract Residual Value from Cost of Asset:
      • 76,000−8,100=67,90076,000 - 8,100 = 67,900
    • Divide the result by Useful Life:
      • 67,9005=13,580\frac{67,900}{5} = 13,580
    • Annual Depreciation Expense: $13,580

  • Book Value Calculation at December 31, 2024

    • The book value is calculated at the end of the first year of depreciation.
    • Book Value Formula:
    • Book Value = Cost of Asset - (Years of Depreciation × Depreciation Expense)
    • There is 1 year of depreciation from January 1, 2024, to December 31, 2024.
    • Calculation:
    • Book Value at December 31, 2024:

      ext{Book Value} = 76,000 - (1 × 13,580)
    • Step-by-step:
    • Multiply Annual Depreciation Expense by Years of Depreciation:
      • 1×13,580=13,5801 × 13,580 = 13,580
    • Subtract from the Cost of Asset:
      • 76,000−13,580=62,42076,000 - 13,580 = 62,420
    • Book Value at December 31, 2024: $62,420

  • Multiple Choice Answer Options:

    • A. $54,320
    • B. $62,420
    • C. $67,900
    • D. $60,800
    • Correct Answer: B. $62,420

  • Conclusion

    • The book value of the machine for the company Joker & Cry as of December 31, 2024, using the straight-line method is confirmed to be $62,420.