Question

After three years, a company has accumulated depreciation of $9,000 on a piece of equipment. The company paid $21,000 for the equipment and records a depreciation expense of $3,000 per year. Record the depreciation expense for the fourth year. Find the net book value for the piece of equipment at the beginning and ending of the fourth year. Show how the equipment will be recorded on the balance sheet for the fourth year.

Answer 1

After four years, with a yearly depreciation expense of $3,000, the beginning net book value of the equipment is $12,000, and at the end of the fourth year, it is $9,000. The balance sheet would show the equipment at its original cost with a deduction for accumulated depreciation.

Step-by-step explanation:

To record the depreciation expense for the fourth year, you would debit the Depreciation Expense account and credit the Accumulated Depreciation account with the amount of $3,000. At the beginning of the fourth year, the net book value of the equipment is its original cost ($21,000) minus the accumulated depreciation after three years ($9,000), which equals $12,000. At the end of the fourth year, you would deduct the depreciation expense for the year ($3,000) from the beginning net book value ($12,000) to arrive at the ending net book value of $9,000.

On the balance sheet for the fourth year, the equipment will be recorded at its historical cost of $21,000, with accumulated depreciation recorded as a contra asset account to reflect the total depreciation to date ($12,000), resulting in a net book value of $9,000.