Sharp purchased equipment at the beginning of 2013 for $11,000.Sharp decided to depreciate the equipment over a 5-year period using the straight-line method.Sharp estimated the equipment's residual value at $1,000.The estimated fair market value at the end of 2013 was $10,000.Which of the following statements is correct concerning Sharp's financial statements at December 31,2013?

Question

Quizplus · Accepted Answer

To calculate the book value of the equipment at the end of 2013, we need to subtract the accumulated depreciation from the original cost of the equipment.

Using the straight-line method:

Depreciation expense per year = (Cost of the equipment - Residual value) / Useful life 
Depreciation expense per year = ($11,000 - $1,000) / 5 = $2,000

Accumulated depreciation at the end of 2013 = Depreciation expense per year x Number of years 
Accumulated depreciation at the end of 2013 = $2,000 x 1 = $2,000

Book value of the equipment at the end of 2013 = Cost of the equipment - Accumulated depreciation 
Book value of the equipment at the end of 2013 = $11,000 - $2,000 = $9,000

Therefore, the correct statement is B) The book value of the equipment is $9,000.

Sharp Purchased Equipment at the Beginning of 2013 for $11,000