Question

At the beginning of year 1, Looby Corp. purchases equipment for $100,000. The equipment has a residual value of $20,000 and an expected useful life of 10 years. Assuming straight-line depreciation, what is book value at the end of year 2?

A) 10,000 dollars
B) 28,000 dollars
C) 8,000 dollars
D) 30,000 dollars

Answer 1

None of the given options.

The book value of equipment at the end of 2nd year would be $84,000.

Step-by-step explanation:

Cost = $100,000

Residual value = $20,000

Useful life = 10 years

Now,

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

Annual straight line depreciation =
`(100,000 - 20,000)/(10)`

Annual straight line depreciation =
`(80,000)/(10)`

Annual straight line depreciation = $8,000

The book value of an asset can be calculated using the following formula:

Book value (ending) = Book value (beginning) - Depreciation expense

Depreciation table has been constructed for 2 years to calculate the book value of equipment at the end of year 2.