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18 April, 16:54

Digger 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. Using the straight-line method, what is the book value of the equipment at the end of the third full year of use?

a. $22,120

b. $28,400

c. $31,520

d. $25,520

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Answers (1)
  1. 18 April, 19:11
    0
    Option (C) is correct.

    Explanation:

    Total cost:

    = Purchase cost + shipping charge + Installation charges

    = $64,000 + $800 + $5,000

    = $69,800

    Depreciation expense:

    = (Cost - Salvage value) : Estimated Useful life

    = ($69,800 - $6,000) : 5

    = $12,760 per year

    Total depreciation expense up to 3rd year:

    = $12,760 per year * 3

    = $38,280

    Therefore,

    Book value of the equipment at the end of the third full year of use:

    = Cost of equipment - Total depreciation expense up to 3rd year

    = $69,800 - $38,280

    = $31,520
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