Question

Cutter Enterprises purchased equipment for $72,000 on January 1, 2021. The equipment is expected to have a five-year life and a residual value of $6,000.

Using the straight-line method, depreciation for 2022 and the equipment's book value at December 31, 2022, would be:

Multiple Choice

• $14,400 and $43,200 respectively.

• $13,200 and $39,600 respectively.

• $13,200 and $45,600 respectively.

• $28,800 and $37,200 respectively.

Answer 1

Solution : OPTION C ($ 13,200 and $ 45,600 respectively) is the correct answer.

Cost of the Equipment = $ 72,000 (purchased in January 2021)

Salvage value = $ 6000

Useful life = 5 years

Depreciation under straight line method   = (Cost of equipment – salvage value ) / useful life

                                                                       = ($ 72,000 - $ 6000) / 5 years

                                                                   = $ 13,200 per year

Book value of the asset at the end of 2022 = Equipment cost – Accumulated depreciation for 2 years

                                                                          = $ 72,000 – [$ 13,200*2 years ( 2021, 2022)]

   = $ 72,000 - $ 26,400

                                                                          = $ 45,600

Conclusion : From the above we can understand that OPTION C satisfies the given requirement in the question whereas remaining options A,B, D, do not satisfy the given requirement in question.

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