Final answer:
The book value of Lennox Corporation's equipment on January 1, 2021, after three years of straight-line depreciation on a 10-year lifespan with no residual value, is $70,000.
Step-by-step explanation:
The book value of an asset, such as equipment, is a crucial financial metric derived from its original cost and accumulated depreciation. In the case of Lennox Corporation's equipment purchased on January 1, 2018, for $100,000, the calculation of the annual depreciation expense using straight-line depreciation over a 10-year period with no residual value provides a clear understanding of the asset's value over time.
The straight-line depreciation method allocates an equal amount of depreciation expense each year. In this scenario, dividing the cost of the equipment ($100,000) by its useful life (10 years) yields an annual depreciation expense of $10,000. By January 1, 2021, three years have passed since the purchase, resulting in an accumulated depreciation of 3 * $10,000, totaling $30,000.
To determine the book value of the equipment on January 1, 2021, one subtracts the accumulated depreciation from the original cost. Therefore, $100,000 - $30,000 equals $70,000. This calculation signifies that, after three years of depreciation, the book value of the equipment is $70,000.
The book value is a vital metric for assessing the net value of an asset on a company's balance sheet. It reflects the portion of the asset's original cost that has not been depreciated and provides insights into its remaining value. In this context, the $70,000 book value indicates the estimated worth of Lennox Corporation's equipment after factoring in three years of depreciation based on the straight-line method.