Capital equipment costing $250,000 today has 50,000 salvage value at the end of 5 years. If the straight line depreciation method is used, what is the book value of the equipment at the end of two years?
A) $200,000
B) $170,000
C) $140,000
D) $50,000

Question

Quizplus · Accepted Answer

The straight-line depreciation method calculates annual depreciation by subtracting the salvage value from the initial cost and dividing by the useful life. Here, ($250,000 - $50,000) / 5 = $40,000 per year. After two years, depreciation is 2 * $40,000 = $80,000. The book value is $250,000 - $80,000 = $170,000.

Capital Equipment Costing $250,000 Today Has 50,000 Salvage Value at the End