Question

Santiago Corporation bought equipment on January 1. The equipment cost $320,000 and had an expected salvage value of $40,000. The life of the equipment was estimated to be 7 years and straight-line depreciation is used. The book value of the equipment at the end of the fifth year would be

A) $168,000
B) $320,000
C) $200,000
D) $120,000
E) $150,000

Answer 1

The correct answer is D = $ 120,000.

Step-by-step explanation:

Determining the depreciation base

Depreciation base =Acquisition cost - Salvage Value

Depreciation base =320,000 - 40,000.

Depreciation base =$280,000.

Determining the depreciation rate.

Depreciation rate = depreciation base/Useful life.

Depreciation rate = 280,000/7.

Depreciation rate =$ 40,000.

Determining accumulated depreciation.

Accumulated depreciation = depreciation rate × number of years.

Accumulated depreciation = 40,000 × 5.

Accumulated depreciation = $200,000.

Determining the book value of the equipment.

Book value of the equipment = Acquisition cost - Accumulated depreciation.

Book value of the equipment = 320,000 - 200,000.

Book value of the equipment = $120,000.