Depreciation From Accounting Coach

A company purchases equipment for $30,000 on July 1, 2016. It estimates that the equipment will have a salvage value of $2,000 and its useful life will be 7 years. Assuming that the company's accounting year ends on December 31 of each year, what will be the Depreciation Expense for the years 2016 and 2017 assuming straight-line depreciation? Year 2016: $_____________________

$2,000 Calculated as follows: Cost of $30,000 minus Estimated Salvage Value of $2,000 = Amount to Be Depreciated. $28,000 divided by 7 years = $4,000 for a full year. In 2016 the asset was in service for six months, so the depreciation expense for 2016 is $2,000 (6/12 of $4,000).

A company purchases equipment for $30,000 on July 1, 2016. It estimates that the equipment will have a salvage value of $2,000 and its useful life will be 7 years. Assuming that the company's accounting year ends on December 31 of each year, what will be the Depreciation Expense for the years 2016 and 2017 assuming straight-line depreciation? Year 2017: $_____________________

$4,000 Calculated as follows: Cost of $30,000 minus Estimated Salvage Value of $2,000 = Amount to Be Depreciated. $28,000 divided by 7 years = $4,000 for a full year.

On January 1, 2012 an asset was acquired for $30,000. Its useful life was expected to be 10 years and the salvage value is expected to be $0. After four years of use, the company realized the asset would be useful for only three more years. (In other words, the total useful life of the asset will be seven years instead of the original 10 years.) The company uses the straight-line method of depreciation. The Depreciation Expense in each of the years 2016, 2017, and 2018 will be $__________.

$6,000 Calculated as follows: Cost of $30,000 minus Estimated Salvage Value of $0 = Amount to Be Depreciated. $30,000 divided by 10 years = $3,000 per year for the years 2012, 2013, 2014, and 2015. After 4 years the Book Value is $18,000 ($30,000 minus $12,000). The Book Value of $18,000 will have to be depreciated over the remaining life of 3 years = $6,000 per year.

16. The book value of an asset is defined as a)Cost Minus Salvage Value b)Cost Minus Accumulated Depreciation. c)Cost Minus Salvage Value Minus Accumulated Depreciation d)Estimated Fair Market Value.

Book value is cost minus the accumulated depreciation. (Sometimes book value is referred to as carrying value.) Book value is not an indication of the fair market value of an asset.

When a company purchases a 10-acre parcel of land and a building located on the land, the company will depreciate the entire cost over the useful life of the building. -True -False

False. Land is not depreciated. Part of the purchase price must be allocated (assigned) to Land. The remaining cost is assigned to the Building and that amount is depreciated.

If a company revises the estimated useful life of one of its assets being depreciated, the company will need to reissue its earlier financial statements as the earlier depreciation was incorrect. True False

False. A change in an estimate affects the current period and future periods. Since it is not an error, the financial statements issued in previous periods are considered proper based on the information at that time and will not need to be revised.

Which of the following depreciation methods is NOT an accelerated method? Double-declining Balance Straight-line Sum-of-the-years' Digits

Straight-line The double-declining balance method and the sum-of-the-years' digits method are forms of accelerated depreciation. This means the depreciation is faster in the early years of the asset's life and then slower in later years when compared to the straight-line method.