Madison, Inc., purchased equipment at a cost of $84,000. The equipment has an es
ID: 2416554 • Letter: M
Question
Madison, Inc., purchased equipment at a cost of $84,000. The equipment has an estimated residual value of $12,000 and an estimated life of 6 years, or 10,000 hours of operation. The equipment was purchased on January 1, 2004. During the first year of operation, it was used for 1,500 hours.
Refer to Madison, Inc.-Equipment. If Madison uses the straight-line method, how much is the book value of the equipment at December 31, 2005?
48,000
56,000
60,000
72,000
a.48,000
b.56,000
c.60,000
d.72,000
Explanation / Answer
Depreciation per annum
= Cost of asset- Salvage value/life of asset
=$84,000-$12,000/6
=$12,000
Depreciation for 2004 and 2005 (2 years)
=12,000 x 2=$24,000
=Book value at the end of 2 year=$84,000-$24,000=$60,000
Option C correct
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