Question

At December 31, 2010, Edgar Enterprises had equipment with a book value of $45,000. On December 31, 2009, the book value was $60,000. The original cost of the equipment was $75,000. Assuming straight-line depreciation and no salvage value, what is the estimated useful life of the asset?

Answer 1

5 years

Step-by-step explanation:

Given that,

Book value of equipment at December 31, 2010 = $45,000

Book value of equipment at December 31, 2009 = $60,000

Original cost of the equipment = $75,000

No salvage value

Book of value of a particular asset includes the adjustment of depreciation expense. So, it is calculated as follows:

Book value of equipment at December 31, 2009 = Cost of equipment - Depreciation expense for 2009

$60,000 = $75,000 - Depreciation expense for 2009

Depreciation expense for 2009 = $75,000 - $60,000

= $15,000

Depreciation for 2010 = $15,000

Here, we are following straight line depreciation method,

Depreciation expense = (Cost of equipment - Salvage value) ÷ Estimated useful life

$15,000 = ($75,000 - 0) ÷ Estimated useful life

Estimated useful life = $75,000 ÷ $15,000

= 5 years