On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021?

Book value = $16,000

Explanation:

Giving the following information:

On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value.

First, we need to calculate the annual depreciation. Then, we can determine the accumulated depreciation and the book value on January 1, 2021:

Annual depreciation = (original cost - salvage value) / estimated life (years)

Annual depreciation = (50,000 - 10,000) / 5 = 8,000

Accumulated depreciation = 8,000*3 = $24,000

Book value = 40,000 - 24,000 = $16,000