Hamilton Company purchased a machine for 11800 on January 1

Hamilton Company purchased a machine for $11,800 on January 1, 2016. The machine has been depreciated using the straight-line method over a four-year life with a $1,600 residual value. Hamilton sold the machine on January 1, 2018, for $8,000 What is straight-line depreciation for the year ended December 31, 2016, and what is the book value on December 31, 2017? What is straight-line depreciation for the year ended December 31, 2016? The depreciation is $ What is the book value on December 31, 2017 The book value is $

Solution

Depreciation as per Straight line method = (Cost - Salvage Value) / No. of useful life

= ($11800 - $1600) / 4 = $2550 each year depreciation

Cost of the Machinery on January 1, 2016= $11800

Less: Depreciation for the year 2016 = $2550 ( ANSWER A)

Book Value on January 1, 2017 $9250

Less: Depreciation for the year 2017 =      $2550

Book Value on January 1,2018

or DECEMBER 31, 2017 $6700 (ANSWER B)