Question

XYZ Enterprises purchased equipment for $140,000 on July 1, 2013. The equipment is expected to have a four-year life and a residual value of $20,000. Using the sum-of-years'-digits method, the net book value of XYZ’s equipment on December 31, 2014, would be (omit $ and , in the answer):

Answer 1

The answer is: Net book value of XYZ’s equipment on December 31, 2014 74000

Step-by-step explanation:

Please find the calculation and explanations as below:

Sum-of-years'-digit = Useful life x ( Useful life +1) / 2 = 4 x 5/2 =10

Depreciable base: Cost of equipment - estimated residual value = 140,000 - 20,000 =$120,000

Apply the half year convention, we have depreciation for 2013 and 2014 are:

Depreciation expenses 2013 = (4:2)/10 x 120,000 = $24,000;

Depreciation expenses 2014 = [ (4:2)/10 + (3:2)/10 ] x 120,000 = $42,000.

=> Accumulated depreciation as at 31 December 2014 = $24,000 + $42,000 = $66,000

=>Net book value = $140,000 - $66,000 = $74,000