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Kansas Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the straight-line method, depreciation expense for 2019 and the book value at December 31, 2019 would be: Select one:

A. $11,000 and $33,000.

B. $12,000 and $36,000.

C. $12,000 and $31,000.

D. $11,000 and $38,000.

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Answer:

Depreciation expense for 2019 and the book value at December 31, 2019 would be: D. $11,000 and $38,000.

Explanation:

Kansas Enterprises uses straight-line depreciation method, Depreciation Expense each year is calculated by following formula:  

Annual Depreciation Expense = (Cost of equipment − Residual Value )/Useful Life = ($60,000 - $5,000)/5 = $55,000/5 = $11,000

Depreciation Expense for 2018 = $11,000

Depreciation Expense for 2019 = $11,000

Accumulated depreciation at December 31, 2019 = $11,000 + $11,000 = $22,000

The book value at December 31, 2019 = Cost of equipment - Accumulated depreciation at December 31, 2019 = $60,000 - $22,000 = $38,000

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