Question

Company Omega bought new petroleum refining equipment in the year 2000. The purchase cost was 172,024 dollars and in addition it had to spend 10,610 dollars for installation. The refining equipment has been in use since February 1st, 2000. Omega forecasted that in 2030 the equipment would have a net salvage value of $10,000. Using the US Straight Line Depreciation Schedule, estimate the value of depreciation recorded in the accounting books in the year 2004 if the company decided to sell the equipment on August 5th (of 2004). (note: round your answer to the nearest cent and do not include spaces, currency signs, or commas)

Answer 1

depreciation in 2004 = 5754.5

Step-by-step explanation:

The salvage value of an asset is the book value estimated at the end of depreciation. The straight-line depreciation method equally distributes the depreciation per year throughout the useful life of the equipment.

In order to calculate the depreciation value in 2004, let us first calculate the depreciation. This is calculated as follows:

Total Depreciation = Purchase cost - salvage value

Purchase cost = cost of equipment + cost of installation

= 172024 + 10610 = $182,634

∴ Total depreciation = 182,634 - 10,000

= $172,634

Depreciation per year = Total depreciation ÷ number of years

Number of years = 2030 - 2000 = 30

Depreciation per year = 172,634 ÷ 30

= 5754.5

∴ depreciation in 2004 = 5754.5