Question

Sargent Corporation bought equipment on January 1, 2018. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. Assuming straight-line deprecation, the book value of the equipment at the beginning of the third year would be

Answer 1

Book value= $260,000

Step-by-step explanation:

First, we need to calculate the annual depreciation using the following formula:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (360,000 - 60,000) / 6

Annual depreciation= $50,000

Now, at the beginning of the third year, the asset accumulated depreciation two times.

Accumulated depreciation= 50,000*2 = 100,000

Finally, the book value:

Book value= purchase price - accumulated depreciation

Book value= 360,000 - 100,000

Book value= $260,000