Question

The Fine Dining Cafe purchased a large freezer to hold its frozen meat and desserts that it sells to diners. The cost of the equipment was $60,000 and is expected to be useful for 10 years. At the end of the 10 year period, the company should be able to salvage $5,000. They paid $1,000 to have the item shipped to their San Marcos location. They paid an additional $2,500 to modify the equipment to fit in the store. They also paid $1,500 to ensure the equipment would work with the electrical system. All costs related to the equipment were purchased on account. They use the straight-line depreciation method. What is the balance in the accumulated depreciation account at the end of year 4? (multiple choice)

A. 24,000

B. 18,000

C. 26,000

D. 19,500

Answer 1

cost of equipment =$60000

useful life = 10 years

salvage value = $5000

Total cost of equipment

cost of equipment = $60000

Transport cost = $1000

Installation cost   = $4000

(2500+1500)

Total cost of equipment= $65000

(-) salvage value   = $5000

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$60000

useful life = 10 years

Depreciation =60000/10=6000

Accumulated Depreciation at year 4= 6000×4

=$24000

Option A- $24000

* Assumed that those cost for modification are before erection of equipment and has to be capitalized