Question

Required information Use the following information for the Exercises below. [The following information applies to the questions displayed below.] Tory Enterprises pays $255,400 for equipment that will last five years and have a $45,300 salvage value. By using the equipment in its operations for five years, the company expects to earn $90,200 annually, after deducting all expenses except depreciation. Exercise 8-9 Straight-line depreciation and income effects LO P1 Prepare a table showing income before depreciation, depreciation expense, and net (pretax) income for each year and for the total five-year period, assuming straight-line depreciation is used.

Answer 1

Purchase price of equipment = $255,400

Salvage value = $45,300

Useful life = 5 years

Annual depreciation expense = (Purchase price of equipment-Purchase price of equipment)/Useful life

= (255,400-45,300)/5

= $42,020

	(A)	(B)	(A-B)
Year	Income before Depreciation	Depreciation expense	Net pretax income
1	90,200	42,020	48,180
2	90,200	42,020	48,180
3	90,200	42,020	48,180
4	90,200	42,020	48,180
5	90,200	42,020	48,180
Total	451,000	210,100	240,900

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