On January 1, 2011, Kinnear Company purchased equipment at a cost of $20,000. The equipment has an estimated useful life of 5 years and a salvage value of $2,000. Kinnear Company uses the straight-line depreciation method for all its assets. Given this information, if Kinnear Company scraps the equipment on December 31, 2012, it will have a loss of

Question

Quizplus · Accepted Answer

The annual depreciation expense for the equipment is ($20,000 - $2,000) / 5 years = $3,600 per year.
At the end of 2012, the accumulated depreciation would be $7,200 ($3,600 x 2 years), and the book value of the equipment would be $10,800 ($20,000 - $7,200).
Since the salvage value is only $2,000, scrapping the equipment would result in a loss of $8,800 ($10,800 - $2,000). Therefore, the best choice is C, $12,800 (the loss of $8,800 plus the accumulated depreciation of $4,000 for the first two years of use).

On January 1, 2011, Kinnear Company Purchased Equipment at a Cost