Question

Acme, Inc.'s balance sheet shows Equipment at a cost of $5,000,000. Accumulated Depreciation is $2,000,000. Acme's income statement shows Depreciation Expense of $200,000 for the year. The equipment has $0 salvage value. Which of the following statements is true?

A) 40% of the equipment's economic benefits have been used up so far
B) 4% of the equipment's economic benefits have been used up so far
C) at this rate, the equipment will never be fully depreciated
D) there must be a mistake because depreciation expense is less than accumulated depreciation

Answer 1

The correct statement is that 40% of Acme, Inc.'s equipment's economic benefits have been used up so far, calculated by dividing the accumulated depreciation by the original cost of the equipment.

Step-by-step explanation:

The correct statement regarding the depreciation of Acme, Inc.'s equipment is A) 40% of the equipment's economic benefits have been used up so far. We can determine this by calculating the proportion of accumulated depreciation to the original cost of the equipment. Accumulated Depreciation of $2,000,000 divided by the original Equipment cost of $5,000,000 equals 40%, indicating that 40% of the equipment’s economic benefits have been used thus far.