Question 10 On January1, 2004, ABC Company purchased equipment for $98,000. The

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Question 10

On January1, 2004, ABC Company purchased equipment for $98,000. The equipmentwas assigned a
12-year life, a $14,000 residual value, and was being depreciatedusing the straight-line method.

On January1, 2009, ABC Company spent $45,000 to completely overhaul theequipment. This overhaul
caused ABC Company to change the life of the equipment from 12years to 25 years with a residual
value at the end of the 25 years of $3,000.

Calculatethe book value of the equipment atDecember 31, 2011. Do not use decimals inyour answer.

Question 10

Explanation / Answer

Initial Book Value 98000 Life 12 years Residual Value 14000 Depreciation per year = (98000 - 14000) / 12 = 7000 You own it for 5 years. Thus, you depreciate 5 * 7000 =35000. The book value is 98000 - 35000 = 63000. At thispoint, you invest another 45000 into the machine making its bookvalue 63000 + 45000 = 108000. New Book Value 108000 New Life Remaining 25 - 5 = 20 New Residual Value = 3000 New depreciation per year = (108000 - 3000) / 20 = 5250 Use for another 3 years. Depreciate 5250 * 3 = 15750 Final Book Value = 108000 - 15750 = 92250

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