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Determine the depreciation and book value based on the information provided. First & Second Street purchased...

Determine the depreciation and book value based on the information provided. First & Second Street purchased equipment for $26,000. It is estimated to have a salvage value of $1,000. The equipment has a 5-year life. -If the asset was purchased on 4/1/16, what is the depreciation recorded in 2016? -If the asset was purchased on 4/1/16, what is the depreciation recorded in 2017? -What is the amount of accumulated Depreciation at 12/31/17? -What is the book value at December 31, 2017, based on your answers provided above? -If the asset is sold on 1/1/18 for $17,000 cash, what is the amount of gain or loss?

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Answer #1

Solution 1:

Cost of equipment = $26,000

Estimated salvage value = $1,000

Depreciable cost = Cost - Salvage value = $26,000 - $1,000 = $25,000

Useful life = 5 years

Annual depreciation = $25,000 / 5 = $5,000

Depreciation to be recorded for 2016 = $5,000*9/12 = $3,750

Solution 2:

Depreciation to be recorded for 2017 = $5,000

Solution 3:

Accumulated depreciation at 31.12.2017 = $3,750 + $5,000 = $8,750

Solution 4:

Book value at 31.12.2017 = Cost - Accumulated depreciation = $26,000 - $8,750 = $17,250

Solution 5:

If sold on 01.01.2018 for $17,000 cash, amount of gain or (loss) = Sale value - Book value = $17,000 - $17,250 = ($250)

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