A company purchased equipment at the beginning of 2012 for $21,000 and decided to depreciate it over a 5-year period using the straight-line method.The equipment's residual value was estimated at $1,000.The estimated fair market value at the end of 2012 was $20,000.Which of the following statements is correct at December 31,2012?

Question

Quizplus · Accepted Answer

To calculate the book value of the equipment at the end of the first year, we need to subtract the accumulated depreciation from the original cost.

The annual depreciation expense will be ($21,000 - $1,000) / 5 = $4,000.

The accumulated depreciation at the end of the year will be $4,000.

Therefore, the book value at December 31, 2012, is $21,000 - $4,000 = $17,000.

Option A is incorrect because the balance in the Equipment account is the original cost of $21,000.

Option C is incorrect because the accumulated depreciation is $4,000, not $4,200.

Option D is incorrect because we report the book value of the equipment, which is $17,000, not the fair market value of $20,000.

A Company Purchased Equipment at the Beginning of 2012 for $21,000