The Chester Company has just purchased $40,900,000 of plant and equipment that h

Question

The Chester Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $4,090,000 (1/10th of its original cost). What will be the book value of this purchase (excluding all other Plant and Equipment) after its first year of use? Use generally accepted (FASB) accounting principles. Select: 1 a) $34,356,000 b) $38,446,000 c) $36,810,000 d) $38,173,333 The Chester Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $4,090,000 (1/10th of its original cost). What will be the book value of this purchase (excluding all other Plant and Equipment) after its first year of use? Use generally accepted (FASB) accounting principles. Select: 1 a) $34,356,000 b) $38,446,000 c) $36,810,000 d) $38,173,333

Explanation / Answer

Depreciation under straight line method= (Cost-salvage value)/useful life

option b. is correct

a Cost of machinery        40,900,000 b Salvage Value          4,090,000 A=a-b Depreciable amount        36,810,000 B Estimated useful life                        15 C=A/B Depreciation per year          2,454,000 D Number of years complete                           1 E=C*D Depreciation expense          2,454,000 F=a-E NBV        38,446,000

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