Let's solve the problem step by step based on the straight-line depreciation method described.

Straight-Line Depreciation Formula:

$\text{Annual Depreciation Expense} = \frac{\text{Cost of the Asset} - \text{Salvage Value}}{\text{Useful Life (in years)}}$

Data Provided:

• Cost of the machine = $86,200
• Salvage value = $7,000
• Useful life = 10 years

Step 1: Compute the Annual Depreciation Expense

$\text{Annual Depreciation Expense} = \frac{86,200 - 7,000}{10} = \frac{79,200}{10} = 7,920$

Thus, the annual depreciation expense is $7,920.

Step 2: Determine Year 2 Depreciation

Under the straight-line method, depreciation is the same each year. Hence, Year 2 Depreciation = $7,920.

Step 3: Compute Year-End Book Value for Year 2

The book value at the end of Year 2 is calculated as: $\text{Year-End Book Value} = \text{Cost of the Machine} - (\text{Depreciation Expense} \times \text{Years of Depreciation})$

$\text{Year-End Book Value} = 86,200 - (7,920 \times 2)$

$\text{Year-End Book Value} = 86,200 - 15,840 = 70,360$

Summary of Results:

• Year 2 Depreciation = $7,920
• Year-End Book Value (Year 2) = $70,360

Would you like a detailed breakdown of this computation or have further questions?

Relative Questions:

1. What happens if the salvage value changes over the machine's lifetime?
2. How does the straight-line depreciation differ from units-of-production depreciation?
3. Can salvage value ever be zero, and what would that imply for depreciation calculations?
4. Why do we assume equal depreciation every year in the straight-line method?
5. How would the calculation change if the machine had a different useful life?

Tip:

When using straight-line depreciation, always verify that the total accumulated depreciation equals the original cost minus salvage value over the asset's lifetime.