Question

Caruso Company purchased equipment on January 1 at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at the end of the second year if the straight-line method of depreciation is used?

Answer 1

The amount of accumulated depreciation at the end of the second year is $156,000.

Step-by-step explanation:

Determining the depreciation base = 400,000 - 10,000

The depreciation base = 390,000.

Determining the depreciation rate = depreciation base/useful life

The depreciation rate = 390,000/5

The depreciation rate = 78,000.

Depreciation for the two years = Depreciation rate × No. of years (which is 2)

Depreciation for the two years = 78,000 × 2

Depreciation for the two years = $156,000.

Answer 2

$156,000

Step-by-step explanation:

Depreciation expense = (Cost of asset - Salvage value) ÷ useful years

($400,000 - $10,000) ÷ 5 = $78,000

The depreciation expense recognised every year is $78,000.

Accumulated depreciation is the sum of yearly depreciation expense.

Accumulated depreciation at the end of the second year = $78,000 × 2 = $156,000