Equipment acquired on january 8 at a cost of 168000 has an...

Equipment acquired on January 8 at a cost of $168,000 has an estimated useful life of 18 years, has an estimated residual value of $15,000, and is depreciated by the straight-line method. a. What was the book value of the equipment at December 31, the end of the fourth year? b. Assuming that the equipment was sold on April 1 of the fifth year for $125,000, journalize the entries to record (1) depreciation for the three months until the sale date and (2) the sale of the equipment.

Transcript

00:01 Okay, for this problem, we want to know the book value of an equipment item after its fourth year using the straight line method.

00:11 So let's write down the information we know.

00:14 The cost was 168 ,000, 168 ,000 was the cost.

00:23 Life, useful life is 18 years.

00:29 So an 18 year life and residual value or salvage value is 15 ,000.

00:41 So if we are doing straight line method depreciation, then our depreciation is the same every year.

00:51 So you take the cost, 168 ,000 minus the salvage value, which is 15 ,000, and you divide it by the useful life, which is 18.

01:07 And that is $8 ,500 per year.

01:19 Depreciate.

01:20 That, that's, that's the depreciation, is $8 ,500.

01:23 So the question wants us to know the book value after year four.

01:27 So we're going to take $8 ,500 and multiply it by four to get our accumulated depreciation, which is $34 ,000.

01:42 That is our depreciation fully after four years.

01:46 To find the book value, you take the cost, 168, and subtract this $34 ,000.

01:54 An accumulated depreciation to find your book value, which is 134, $134 ,000 is your book value.

02:05 So that's your answer to part a.

02:09 Part b asks to make a journal entry for the first three months of depreciation before it sold.

02:16 So let's do that first.

02:18 So if $8 ,500 is an annual depreciation expense, we're going to multiply it by three...

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