Question

Bates Company purchased equipment on January 1, 2006, at a total invoice cost of $600,000. The equipment has an estimated salvage value of $15,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used?

a. $120,000
b. $240,000
c. $117,000
d. $234,000

Answer 1

d. $234,000

Step-by-step explanation:

Accumulated depreciation is the total depreciation for a fixed asset that has been charged to expense since that asset was put into service.

Under the straight-line method, depreciation is calculated using following formula:

Straight-Line Depreciation Expense = (Cost − Salvage Value )/Useful Life of the Asset

Depreciation Expense in 1 year of the equipment = ($600,000-$15,000)/5 = $117,000

At December 31, 2007, the equipment has been put into service for 2 year,

Accumulated depreciation = Depreciation in 2006 + Depreciation in 2007

= $117,000 + $117,000 = $234,000