On January 1, Year 1, Ballard company purchased a machine for $36,000. On January 1, Year 2, the company spent $11,000 to improve its quality. The machine had a $6,000 salvage value and a 6-year life, which are unchanged. Ballard uses the straight-line method. What is the book value of the machine on December 31, Year 4

Book value of the machine at the end of year 4 is $20400

Explanation:

The year one depreciation is computed using the below straight depreciation method:

depreciation=cost-residual value/useful life = ($36,000-$6,000) / 6=$5,000

after year one book value=$36,000-$5,000=$31,000

year two depreciation = ($31,000+$11,000-$6,000) / 5=$7200

year 4 book value=$42,000 - ($7200*3) = $20400

depreciation from year 2 onwards remain the same