Question

Kansas Enterprises purchased equipment for $60,000 on January 1, 2012. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years.Using the straight-line method, depreciation expense for 2013 and the book value at December 31, 2013 would be:a. $12,000 and $36,000.b. $12,000 and $31,000.c. $11,000 and $33,000.d. $11,000 and $38,000.

Answer 1

(D) Annual depreciation will be $11000

And book value will be $38000

Step-by-step explanation:

We have given Kansas purchased equipment for $60000

So Acquisition cost = $60000

Residual value = $5000

We know that annual depreciation is given by

Life time = 5 years

Annual depreciation expense
`=(Acquisition\ cost-residual\ value)/(life\ time)=($60000-$5000)/(5)=$11000`

Depreciation expense is the same every year under straight-line. Therefore, in 2013 the depreciation expense is $11,000

Book value is given by

Book value = Acquisition Cost - Accumulated Depreciation

=
`60000-2* (110000)=$38000`

The Book Value of the asset is therefore $38,000 after 2 years of service