Question

Cutter Enterprises purchased equipment for $72,000 on January 1, 2010. The equipment is expected to have a five-year life, with a residual value of $6,000 at the end of five years. Using the straight-line method, depreciation expense for 2011 and the book value at December 31, 2011 would be:

Answer 1

The depreciation expense for 2011 = $13,200

The Book value on December 31, 2011 = $45,600

Step-by-step explanation:

Data provided in the question:

Cost of the equipment purchased = $72,000

Residual value = $6,000

Useful life = 5 years

now,

Using the straight-line method of depreciation

The annual depreciation = ( Cost - residual value ) ÷ ( Useful life )

= ( $72,000 - $6,000 ) ÷ 5

= $13,200

Therefore,

The depreciation expense for 2011 = Annual depreciation

= $13,200

Now,

accumulated depreciation on December 31, 2011

= Annual depreciation × Number of years passed

= $13,200 × 2

= $26,400

Therefore,

The Book value on December 31, 2011

= Purchasing cost - accumulated depreciation

= $72,000 - $26,400

= $45,600