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11 January, 13:29

On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021?

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  1. 11 January, 14:43
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    Book value = $16,000

    Explanation:

    Giving the following information:

    On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value.

    First, we need to calculate the annual depreciation. Then, we can determine the accumulated depreciation and the book value on January 1, 2021:

    Annual depreciation = (original cost - salvage value) / estimated life (years)

    Annual depreciation = (50,000 - 10,000) / 5 = 8,000

    Accumulated depreciation = 8,000*3 = $24,000

    Book value = 40,000 - 24,000 = $16,000
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