A capital equipment costing $400,000 today has no (zero) salvage value at the end of 5 years. If straight-line depreciation is used, what is the book value of the equipment at the end of three years?
A) $120,000
B) $80,000
C) $160,000
D) $240,000

Question

Quizplus · Accepted Answer

Straight-line depreciation means the equipment depreciates by the same amount each year. The annual depreciation is $400,000 / 5 = $80,000. After three years, the total depreciation is 3 * $80,000 = $240,000. Therefore, the book value at the end of three years is $400,000 - $240,000 = $160,000.

A Capital Equipment Costing $400,000 Today Has No (Zero) Salvage