Sammy is in the doghouse business. He bought an automatic doghouse machine on January 1 for $10,000. He estimates it will last him for 10 years, after which it will be worthless. After five years, he wished he had bought the deluxe model which also puts on the roof. In order to buy the newer machine, he sells the first machine on December 31 of the 5th year for $3500.

1. Calculate the annual depreciation over the useful life of the machine using the straight line depreciation method. Set up a depreciation schedule.

2. Determine his income or loss from the sale of the old machine at the end of the 5th year.

3. What is the book value of the machine at the end of the 3rd year?