Question

Cuso Company purchased equipment on January 1, 2016, 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 December 31, 2017, if the straight-line method of depreciation is used?

A. $80,000
B. $160,000
C. $78,000
D. $156,000

Answer 1

D. $156,000

Step-by-step explanation:

Cost = $400,000

Residual value = $10,000

Useful life = 5 years

Now,

Annual straight line depreciation =
`(Cost-Residual Value)/(Useful life)`

Annual straight line depreciation =
`(400,000 - 10,000)/(5)`

Annual straight line depreciation =
`(390,000)/(10)`

Annual straight line depreciation = $78,000

Annual depreciation expense is transferred to the accumulated depreciation. Thus, accumulated depreciation is sum of depreciation expense charged over the useful life of the asset.

Depreciation table has been constructed to compute the accumulated depreciation on 31st December 2017.