Question

NewTech purchases computer equipment for $154,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $25,000. Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation

Answer 1

Under straight-line method, the computer equipment will be depreciated over the useful life of the asset equally and will reach its salvage value. As the name suggests, the equipment will be depreciated equally over its useful life which means same each year.

Depreciation expense per year = ( Cost - Salvage value ) / Useful life = ( $154,000 - $25,000 ) / 4 years = $32,250 per year.

Year	Opening Book value ( a )	Depreciation expense ( b)	Ending book value ( a - b )
1	$154,000	$32,250	$121,750
2	$121,750	$32,250	$89,500
3	$89,500	$32,250	$57,250
4	$57,250	$32,250	$25,000