Question

Cody Enterprises purchased equipment for $64,000. In addition, shipping charges of $800 were incurred to obtain the equipment. The company paid $5,000 to construct a foundation and install the equipment. The equipment is estimated to have a residual value of $6,000 at the end of its 5-year useful life. Use the information above to answer the following question. Using the straight-line method, what is the book value of the equipment at the end of the third full year of use

Answer 1

$12,760

Step-by-step explanation:

The calculation of book value of the equipment at the end is shown below:-

Depreciation expense each year = Cost - Salvage ÷ Life

= ($64,000 + $800 + 5,000) - $6,000 ÷ 5

= $69,800 - $6,000 ÷ 5

= $63,800 - $1,200

= $12,760

Therefore for computing the depreciation each year we simply applied the above formula.