On January 2, 2011, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. What is the book value of the asset on December 31, 2012, if KJ Corporation uses the straight-line method of depreciation?

Question

Quizplus · Accepted Answer

The straight-line depreciation method calculates annual depreciation as (Cost - Residual Value) / Useful Life. For KJ Corporation, this is ($260,000 - $20,000) / 5 = $48,000 per year. After two years, the accumulated depreciation is $96,000. The book value on December 31, 2012, is $260,000 - $96,000 = $164,000.

On January 2, 2011, KJ Corporation Acquired Equipment for $260,000