Presley Company purchased equipment on January 1, 20x1. This is the only equipme
ID: 2489553 • Letter: P
Question
Presley Company purchased equipment on January 1, 20x1. This is the only equipment that Presley company owns. The following information relates to this equipment: Initial cost $400,000 Depreciation method Straight Line Use the sliders provided above for (1) expected useful life and (2) estimated residual value to answer the following questions: 1. Assume that the equipment has an expected useful life of 10 years and an estimated residual value of $40,000. a. Determine depreciation expense for the year ended December 31, 20x1. $ b. Determine depreciation expense for the year ended December 31, 20x2. $ c. The depreciation expense in 20x2 will be the depreciation expense in 20x1. d. Determine the book value of the equipment that should be reported on the December 31, 20x1 balance sheet. $ e. As the equipment is depreciated each year, the book value of the equipment that is reported on the balance sheet will . 2. Assume that the equipment has an expected useful life of 5 years and an estimated residual value of $70,000. a. Determine depreciation expense for the year ended December 31, 20x1. $ b. Determine depreciation expense for the year ended December 31, 20x2. $ c. If the estimated residual value remains the same, an increase in the estimated useful life of the equipment will result in annual depreciation expense. d. Determine the book value of the equipment that should be reported on the December 31, 20X2 balance sheet. $ e. If the estimated useful life remains the same, an increase in the estimated useful residual value of the equipment will result in annual depreciation expense.
Explanation / Answer
Answer to Part 1.
Given:
Initial Cost of the equipment = $400,000
Expected useful life = 10 years
Expected residual value = $40,000
Depreciation method = SLM
a. Calculation of depreciation expense for the year ended December 31, 20X1
Depreciation = (Initial Cost - Expected Residual Value) / Expected Useful Life
= ($400,000 - $40,000) / 10
= $36,000
b. Calculation of depreciation expense for the year ended December 31, 20X2:
Depreciation under SLM method is same throughout the expected life of the asset.
Therefore, Depreciation = $36,000
c. Yes, the depreciation expense in 20X2 is same as the depreciation expense in 20X1.
d. Calculation of the book value of the equipment reported on the December 31, 20X1 balance sheet:
Initial Cost of the Equipment = $400,000
Less: Depreciation for 20X1 = ($36,000)
WDV of the Equipment = $364,000
Therefore, the book value of the equipment reported on December 31, 20X1 is $364,000.
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