Equipment was purchased for $68,000 on January 1, 2013. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2014, if the straight-line method of depreciation is used? a. $26,720. b. $13,360. c. $11,440. d. $22,880.

a. $26,720

Explanation:

Before computing the accumulated depreciation, first we have to compute the original cost of the equipment, after that the depreciation expense. The calculation is shown below:

Original cos t = Equipment purchase cost + freight charges + installment charges

= $68,000 + $2,800 + $8,000

= $78,800

Now the depreciation expense under the straight-line method is shown below:

= (Original cost - residual value) : estimated life in years

= ($78,800 - $12,000) : 5 years

= $13,360

Now the accumulated depreciation is

= Depreciation expense * number of years

= $13,360 * 2 years

= $26,720