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ABC Company purchased equipment on January 1, 2009 for $70,000. It was estimated that the equipment...

ABC Company purchased equipment on January 1, 2009 for $70,000. It was estimated that the equipment would have a $5,000 salvage value at the end of its 4-year useful life. It was also estimated that the equipment would produce 100,000 units over its 4-year life. The company used the straight-line depreciation method. If 16,000 units of product were produced in 2009 and 24,000 units were produced in 2010, what was the book value of equipment at December 31, 2010?

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Answer #1

Purchase Price = $ 70,000 on January 01, 2009

Salvage Value = $ 5,000

Useful life = 4 years , Depreciation method = Straight Line Method

Depreciable Value = $ 70,000 - $ 5,000 = $ 65,000

Depreciation per year = $ 65,000 / 4 = $ 16,250.

Book Value of Equipment at december 31, 2010 = Purchase price - Depreciation for 2 years

= $ 70,000 - 2 ( $ 16,250 ) = $ 70,000 - $ 32500 = $ 37,500.

Book Value of Equipment at december 31, 2010 = $ 37,500.

Since the company uses Straight Line Method of Depreciation, the details relating to the Units of Production method of depreciation are not relevant.

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