Equipment was purchased for $85,000 on January 1, 2016. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?

Question

Christina Benjamin

Business

2 March, 07:48

Equipment was purchased for $85,000 on January 1, 2016. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?

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Salma Zimmerman · Answer 1

Accumulated depreciation = $33,400

Explanation:

We have to take into account that the total purchasing price of the equipment is formed by the purchasing price per se, and all necessary cost until it is ready to function.

Purchasing price = 85,000 + 3,500 + 10,000 = $98,500

It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life.

To determine the accumulated depreciation at the end of 2017, first, we need to calculate the annual depreciation using the straight-line method.

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

Annual depreciation = (98,500 - 15,000) / 5 = $16,700

Accumulated depreciation = 16,700*2 = $33,400