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New Deli is in the process of closing its operations. It sold its three-year-old ovens to Sicily Pizza for $341,000. The ovens originally cost $455,000, had an estimated service life of 10 years, had an estimated residual value of $30,000, and were depreciated using straight-line depreciation. Complete the requirements below for New Deli. Calculate the balance in the accumulated depreciation account at the end of the third year.

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hyderali230

Answer:

The accumulated depreciation account at the end of the third year is $127,500

Explanation:

Accumulated depreciation is the amount of depreciation which is accumulated against each years depreciation and carried until the disposal of the asset. This account will be closed on the disposal of the asset with cost of the asset.

Original Cost of Oven = $455,000

Estimated Service Life = 10 years

Estimated Residual Value = $30,000

Formula for straight line depreciation is

Depreciation per year =( Cost of Asset - residual value ) / useful life

Depreciation per year = ( $455,000 - $30,000 ) / 10 years

Depreciation per year = 42,500 per year

As three years are passed, Accumulated depreciation will be

Accumulated Depreciation at the end of 3 years = $42,500 x 3 = $127,500

jayilych4real

The accumulated depreciation account at the end of the third year is $127,500.

What is Depreciation Cost?

This refers to the value of a fixed asset then minus the depreciation accumulated.

Hence, to calculate the accumulated depreciation, we would have to state the parameters

  • Original Cost of Oven = $455,000
  • Estimated Service Life = 10 years
  • Estimated Residual Value = $30,000

Hence, in a straight line

Depreciation per year =( Cost of Asset - residual value ) / useful life

= ( $455,000 - $30,000 ) / 10 years

=> 42,500 per year

After 3 years, Accumulated depreciation will be

$42,500 x 3 =

$127,500

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