Elmo Corporation bought equipment January 1st for $88,644 with an estimated life

Question

Elmo Corporation bought equipment January 1st for $88,644 with an estimated life of eight years. The residual value of the car is $5,100. Elmo Corporation uses the straight-line depreciation method. a) What was the amount of depreciation expense taken by Elmo Corporation for the first year that they had the car? b) What was the amount of the car’s book value at the end of year 4? c) If the car was originally purchased on September 28th (not on January 1st), what would have been the amount of depreciation expense that Elmo Corporation would have taken in that first year? (Round your answer to the nearest cent.)

Explanation / Answer

Solution:

Caluculation of Depreciation on Stright Line Method:

Depreciation Scheduled

Year Book Value Year Start Depreciation Expences Accumulated Depreciation Book Value Year End 1 $88,644 $3,481 $3,481 $85,163 2 $85,163 $10,443 $13,924 $74,720 3 $74,720 $10,443 $24,367 $64,277 4 $64,277 $10,443 $34,810 $53,834 5 $53,834 $10,443. $45,253 $43,391 6 $43,391 $10,443 $55,696 $32,948 7 $32,948 $10,443 $66,139 $22,505 8 $22,505 $10,443 $76,582 $12,062 9 $12,062 $10,443 $83,544   $5,100

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