Question

Jennings advertising inc. reported the following in December 31 2021 balance sheet:

Accumulated depreciation-equipment $360,000

in disclosure note, Jennings indicates that it uses straight-line depreciation over 4 years and estimates a salvage value of 50,000. Jennings equipment averages 3 years at December 31. What is the acquisition cost of the equipment owned by Jennings?

Answer 1

Accumulated depreciation = $360,000

Useful life = 4 year

Salvage value = $50,000

At Dec 31, 2021, equipment has been used for 3 year. Hence, accumulated depreciation denotes depreciation for 3 years.

Depreciation for 3 year = $360,000

Depreciation expense per year = 360,000/3

= $120,000

Depreciable cost of the equipment = Depreciation expense per year x Useful life

= 120,000 x 4

= $480,000

Acquisition cost of equipment = Depreciable cost of the equipment + Salvage value

= 480,000 + 50,000

= $530,000