A piece of capital equipment costing $400,000 today has no (zero)salvage value at the end of five 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 that the cost of the equipment is spread evenly over its useful life, in this case, five years. Therefore, the annual depreciation expense is $80,000 ($400,000 ÷ 5). At the end of three years, the accumulated depreciation would be $240,000 ($80,000 x 3). Subtracting the accumulated depreciation from the original cost gives us the book value:
$400,000 - $240,000 = $160,000. Therefore, the book value of the equipment at the end of three years is $160,000.

A Piece of Capital Equipment Costing $400,000 Today Has No