A company purchased equipment at the beginning of the year for $21,000 and decided to depreciate it over a 5-year period using the straight-line method. The equipment's residual value was estimated at $1,000. The estimated fair market value at the end of the year was $20,000. Which of the following statements is correct at the end of the year?
A)The balance in the Equipment account is $17,000.
B)The book value of the equipment is $17,000.
C)The total accumulated depreciation is $4,200.
D)The equipment will be reported on the balance sheet at it fair market value of $20,000.

Question

Quizplus · Accepted Answer

Using the straight-line method, the depreciation expense is calculated as ($21,000 - $1,000) / 5 = $4,000 per year. At the end of the first year, the accumulated depreciation is $4,000. Therefore, the book value of the equipment is $21,000 - $4,000 = $17,000. The fair market value has no impact on the book value of the asset or the accumulated depreciation.

A Company Purchased Equipment at the Beginning of the Year