ABC Company purchased a new machine on January 1, Year 1 for \$44,000. The company expects the machine to last ten years. The company thinks it could sell the scrap metal from the machine for \$4,000 at the end of its useful life. If the company uses the straight-line method for depreciation, what will be the net book value of the machine on December 31, Year 4?

• A. \$22,400
• B. \$24,000
• C. \$26,400
• D. \$28,000

Answer: (D)

Verified step by step guidance

1. Identify the initial cost of the machine, which is \$44,000, and the expected salvage value at the end of its useful life, which is \$4,000.
2. Calculate the depreciable amount by subtracting the salvage value from the initial cost: \$44,000 - \$4,000 = \$40,000.
3. Determine the useful life of the machine, which is 10 years, and use this to calculate the annual depreciation expense using the straight-line method: \$40,000 / 10 years = \$4,000 per year.
4. Calculate the total depreciation for the first four years by multiplying the annual depreciation expense by 4: \$4,000 * 4 = \$16,000.
5. Subtract the total depreciation from the initial cost to find the net book value at the end of Year 4: \$44,000 - \$16,000.