Supreme Auto Service opened a new service center three decades ago. At the time the center was preparing to open, new equipment was purchased totaling $366,000. Residual value of the equipment was estimated to be $46,000 after 20 years. The company accountant has been using straight-line depreciation on the equipment. (a) How much was the annual depreciation for the original equipment (in $)? (b) If the hydraulic lift had originally cost $10,980, what would its residual value (in $) be after 20 years? (c) After six years of operation, the original hydraulic lift was replaced with a new model that cost $21,000. Book value was allowed for the old machine as a trade-in. What was the old hydraulic lift's book value when the replacement machine was bought (in $)? (d) What was the book value of the equipment inventory at the six-year point, substituting the new hydraulic lift for the original after the new lift had joined the inventory (in $)?
Supreme Auto Service opened a new service center three decades ago. At the time the center was preparing to open, new equipment was purchased totaling $366,000. Residual value of the equipment was estimated to be $46,000 after 20 years. The company accountant has been using straight-line depreciation on the equipment. (a) How much was the annual depreciation for the original equipment (in $)? (b) If the hydraulic lift had originally cost $10,980, what would its residual value (in $) be after 20 years? (c) After six years of operation, the original hydraulic lift was replaced with a new model that cost $21,000. Book value was allowed for the old machine as a trade-in. What was the old hydraulic lift's book value when the replacement machine was bought (in $)? (d) What was the book value of the equipment inventory at the six-year point, substituting the new hydraulic lift for the original after the new lift had joined the inventory (in $)?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Supreme Auto Service opened a new service center three decades ago. At the time the center was preparing to open, new equipment was purchased totaling $366,000. Residual value of the equipment was estimated to be $46,000 after 20 years. The company accountant has been using straight-line depreciation on the equipment.
(a) How much was the annual depreciation for the original equipment (in $)?
(b) If the hydraulic lift had originally cost $10,980, what would its residual value (in $) be after 20 years?
(c) After six years of operation, the original hydraulic lift was replaced with a new model that cost $21,000. Book value was allowed for the old machine as a trade-in. What was the old hydraulic lift's book value when the replacement machine was bought (in $)?
(d) What was the book value of the equipment inventory at the six-year point, substituting the new hydraulic lift for the original after the new lift had joined the inventory (in $)?
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