Blank Mind, Inc, just purchased a new psychograph machine for $10,000. The expected resale value (salvage value) after 4 years is $500. Determine (1) the depreciation charge and (2) book value for Years 1 through 3 using the straight line method
Depreciation Charge:

Book Value Year 1:

Book Value Year 2:

Book Value Year 3:

Depreciation charge 2375

Book value Year 1 : 7,625

Book value Year 2 : 5,250

Book value Year 3 : 2,875

Step-by-step explanation

Straight-line depreciation is the simplest method of depreciation, the formula is

Cost of an asset - salvage value ÷ useful life

Let's substitute the values

10,000 - 500 ÷4 = 2,375

This is our depreciation charge.

Then we simply deduct the depreciation charge every year from the cost of the asset until we reach the salvage value.

1st year 10,000 - 2,375 = 7,625

2nd year 7,625 - 2,375 = 5,250

3rd year 5,250 - 2,375 = 2,875

4th year 2,875 - 2,375 = 500 (salvage value)

Depreciation is recorded as

Debit depreciation expense, credit accumulated depreciation.