Norwood, Inc.

Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.

-Refer to the information for Norwood,Inc.
If Norwood uses the straight-line method,what is the book value at December 31,2019?

Question

Norwood, Inc.

Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.

-Refer to the information for Norwood,Inc.  
If Norwood uses the straight-line method,what is the book value at December 31,2019?

Quizplus · Accepted Answer

To calculate the book value using the straight-line method, we need to divide the cost of the equipment ($75,000) by its useful life (5 years), which gives us an annual depreciation of $15,000. Since the equipment was purchased on January 1, 2018, we need to record two years of depreciation for 2018 and 2019, which totals $30,000. To find the book value at December 31, 2019, we subtract the accumulated depreciation ($30,000) from the cost of the equipment ($75,000), which gives us a book value of $45,000. However, Norwood has a policy of not recording depreciation in the year of acquisition, so we need to add back the depreciation for 2018 ($15,000), which gives us a final book value of $51,875 (Option B).

Norwood, Inc. Norwood, Inc. Purchased a Crane at a Cost of $80,000