Question

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with an annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?

1) $80,000
2) $100,000
3) $82,000
4) $60,000

Answer 1

The book value of the equipment at the end of the second year, after accounting for the straight-line depreciation of $40,000, is $60,000.

Step-by-step explanation:

The question asks for the book value of a piece of equipment at the end of the second year, given that it was depreciated using the straight-line method. Initially, the equipment cost $100,000, with an annual depreciation of $20,000. After two years, the cumulative depreciation is $20,000 multiplied by 2, which equals $40,000. To calculate the book value after two years, we subtract the cumulative depreciation from the original cost:

Original cost of equipment - Cumulative depreciation = Book value
$100,000 - $40,000 = $60,000

Therefore, the book value of the equipment at the end of the second year is $60,000.