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17 November, 14:22

At December 31, 2010, Edgar Enterprises had equipment with a book value of $45,000. On December 31, 2009, the book value was $60,000. The original cost of the equipment was $75,000. Assuming straight-line depreciation and no salvage value, what is the estimated useful life of the asset?

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  1. 17 November, 14:26
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    5 years

    Explanation:

    Given that,

    Book value of equipment at December 31, 2010 = $45,000

    Book value of equipment at December 31, 2009 = $60,000

    Original cost of the equipment = $75,000

    No salvage value

    Book of value of a particular asset includes the adjustment of depreciation expense. So, it is calculated as follows:

    Book value of equipment at December 31, 2009 = Cost of equipment - Depreciation expense for 2009

    $60,000 = $75,000 - Depreciation expense for 2009

    Depreciation expense for 2009 = $75,000 - $60,000

    = $15,000

    Depreciation for 2010 = $15,000

    Here, we are following straight line depreciation method,

    Depreciation expense = (Cost of equipment - Salvage value) : Estimated useful life

    $15,000 = ($75,000 - 0) : Estimated useful life

    Estimated useful life = $75,000 : $15,000

    = 5 years
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