Question

Determining Fixed Asset's Book Value The balance in the equipment account is $3,150,000, and the balance in the accumulated deprecation-equipment account is $2,075,000. 2. What is the book value of the equipment? b. Does the balance in the accumulated depreciation account mean that the equipment's loss of value is $2,075,000? , because depreciation is an allocation of the of the equipment to the periods benefiting from its use.

Answer 1

Requirement 1:

a. Answer: $1,075,000

Calculations:

Cost of the equipment	$3,150,000
(Less): Accumulated depreciation	($2,075,000)
Book value of the equipment	$1,075,000

b. Yes, because depreciation is an allocation of the loss of value of the equipment to the periods benefiting from its use.

Requirement 2:

a	Account Title and Explanation	Debit	Credit
	Insurance expense	$20,250
	Prepaid insurance		$20,250
	[To record insurance expense]
b	Account Title and Explanation	Debit	Credit
	Insurance expense [$27,000 - $6,750]	$20,250
	Prepaid insurance		$20,250
	[To record insurance expense]