Question

32. Nabors Finance Company reported equipment with an original cost of $379,000 and $344,000 and accumulated depreciation of $153,000 and $128,000, respectively in its financial statements for years ended December 31, 2020 and 2019. During 2020, Nabors purchased equipment costing $50,000 and sold equipment with carrying amount of $9,000. What amount should Nabors report as depreciation expense for 2020?

a. $19,000 c. $31,000 b. $25,000 d. $34,000

Answer 1

Net book value at the end of the year

= Original Cost – Accumulated Depreciation

So, For 2019, Net book value should be

= $344,000 - $128,000

= $216,000

For 2020, the Net book value is

= $379,000 - $153,000

= $226,000

But the net book value of 2020 is after depreciation of 2020

Now, if an asset with carrying amount ( Original cost – Depreciation ) of $9,000 is sold, it will be deducted from the net book value and if any asset is purchased, it will be added to net book value ( without considering depreciation for the purpose of calculating depreciation of 2020 )

So, starting with ending book values of 2019, the net book value before depreciation for 2020

= Net book value of 2019 + Purchases – Sales

= $216,000 + $50,000 - $9,000

= $257,000

So, Depreciation for 2020

Net book value before depreciation – Net book value after depreciation

= $257,000 - $226,000

= $31,000

So, as per above calculations, option c ( $31,000 ) is the correct option