A building was purchased for $50,000. The asset has an expected useful life of six years and depreciation expense each year is $8,000 using the straight-line method. What is the residual value of the building?

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BlackTom AI · Accepted Answer

We start by identifying what the problem provides and what is being asked. The asset cost is 50,000 and it has a useful life of six years with straight-line depreciation of 8,000 per year. 
Option A: "$0." If the asset depreciates 8,000 each year for six years, total accumulated depreciation would be 8,000 × 6 = 48,000. Since cost minus accumulated depreciation equals residual value, 50,000 − 48,000 = 2,000, not 0. This option is inconsistent with the given depreciation schedule. 
Option B: "$2,000." This aligns with the calculation: 50,000 cost minus 48,000 total depreciation over six years leaves a residual value of 2,000. 
Option C: "$4,000." This would imply more depreciation happened than the schedule allows (50,000 − 4,000 = 46,000 accumulated depreciation, which over six years would be about 7,667 per year, not 8,000 for six years or any consistent interpretation under straight-line with the given data). It does not fit the provided depreciation amount. 
Option D: "$6,000." Similar to Option C, this would require an even larger total depreciation (44,000 total depreciation), which is inconsistent with 8,000 per year over six years (which sums to 48,000). In short, the residual value cannot be 6,000 when the annual depreciation is fixed at 8,000 for six years. 
Putting it together, the only value that satisfies cost less six years of depreciation at 8,000 per year is 50,000 − (8,000 × 6) = 2,000, so the residual value must be 2,000.

25/SP-ACC-220-1M3, ACC-220-103 Chapter Seven Quiz

A building was purchased for $50,000. The asset has an expected useful life of six years and depreciation expense each year is $8,000 using the straight-line method. What is the residual value of the building?

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