Question

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On April 2, 2017, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $480,000 with a residual value of $30,000 at the end of its estimated useful lifetime of 4 years.

If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, 2018 will be:

Answer 1

Book value of the equipment at December 31, 2018 = $ 311,250

Explanation

Depreciation recognized on this equipment in 2017 = [(Cost - residual value) / Estimated useful lifetime] / 2

= [($480,000 - $30,000) / 4 years] / 2

= $ 112,500 / 2

= $ 56,250

Depreciation recognized on this equipment in 2018 = (Cost - residual value) / Estimated useful lifetime

= ($480,000 - $30,000) / 4 years]

= $ 112,500

Book value of the equipment at December 31, 2018 = $480,000 - ($ 56,250 + $ 112,500)

= $480,000 - $ 168,750

= $ 311,250