Question

A Company purchased equipment on November 1, 2017 for $7,200 with a 2 years useful life. On March 31, 2019, the company decided to dispose the equipment. The equipment is depreciated under the straight-line method.

Compute the equipment’s:

Annual depreciation expense: *

a-$1,200

b-$2,100

c-$3,600

d-$6,300

e-None of the above

Depreciation expense of the year 2017: *

a-$300

b-$600

c-$900

d-$1,200

e-None of the above

Depreciation expense of the year 2018: *

a-$300

b-$600

c-$900

d-$1,200

e-None of the above

Depreciation expense of the year 2019: *

a-$300

b-$600

c-$900

d-$1,200

e-None of the above

Accumulated Depreciation at the disposal date: *

a-$3,600

b-$4,500

c-$4,800

d-$5,100

e-None of the above

Book value at the disposal date: *

a-$2,100

b-$2,400

c-$2,700

d-$3,100

e-None of the above

Assume that the equipment was sold for $1,200, what is the result of this disposal: *

a-Loss $300

b-Loss $600

c-Loss $900

d-Loss $1,200

e-None of the above

Answer 1

Purchase date- November 1 2017

Cost = 7200

Useful life = 2 years

Disposal date= March 31 2019

Depreciation method= Straight line method

1.

Annual depreciation expense

= Cost-salvage value/ useful life

=7200/2

= 3600.

Correct option -c

2. Depreciation for the year 2017

Number of months used in 2017= 2 months

Depreciation for the year 2017= Annual depreciation * number of months used/12

= 3600*2/12

= 600

Correct option -b

3. Depreciation expense for the year 2018

Depreciation expense for the year 2018= Annual depreciation expense = 3600

Correct option -e

4. Depreciation expense for the year 2019.

Number of months used in 2019 = 3 months

Depreciation for the year 2019

= Annual depreciation expense* number of months usage/12

= 3600*3/12

= 900

Correct option -c

5. Accumulated depreciation at disposal date

= Depreciation expense for 2017+ depreciation expense for 2018+ depreciation expense for 2019

= 600+3600+900

= 5100

Correct option - d

6. Book value at disposal date

= Original cost- Accumulated depreciation till disposal date

= 7200-5100

= 2100

Correct option - a

7. Sale price = 1200

Book value on disposal date= 2100

Since book value is more than the sale consideration, there is loss.

Loss = book value- sale price

= 2100-1200

= 900 loss

Correct option - c