Question

On January 1, 20X1, Emily’s Boutique purchased equipment for $50,000 which is expected to have a 6-year useful life and a $5,000 salvage value. Using straight-line depreciation, a) what is the annual depreciation expense on this equipment? b) what is the monthly depreciation expense on this equipment? c) what is the annual depreciation expense on this equipment that will appear in the income statement for year ended December 31, 20X3? d) what is the accumulated depreciation on this equipment through December 31, 20X3? e) Show how this equipment will be presented in the Statement of Financial Position as of December 31, 20X3, under U.S. generally accepted accounting principles.

Answer 1

Emily's Boutique

a) Annual depreciation expense on this equipment?

= $7,500

b) Monthly depreciation expense on this equipment?

= $625

c) Annual depreciation expense on this equipment that will appear in the income statement for year ended December 31, 20X3?

= $7,500

d) Accumulated depreciation on this equipment through December 31, 20X3?

= $7,500 x 3

= $22,500

e) How this equipment will be presented in the Statement of Financial Position as of December 31, 20X3, under U.S. generally accepted accounting principles:

Equipment $50,000

less accumulated depreciation $22,500

Net book value $27,500

Step-by-step explanation:

a) Data and Calculations:

Equipment value = $50,000

Useful life = 6 years

Salvage value = $5,000

Depreciable amount = $45,000 ($50,000 - $5,000)

Method of depreciation = straight-line

Rate of depreciation per year = Depreciable amount divided useful life

= $45,000/6

= $7,500

Monthly depreciation charge = Annual depreciation divided by 12

= $7,500/12

= $625