Macbeth Corp.'s comparative statements of financial position at December 31, 2020 and 2019 reported accumulated depreciation balances of $ 960,000 and $ 720,000, respectively. Equipment with a cost of $ 60,000 and a book value of $ 48,000 was the only equipment sold in 2020. Therefore, the depreciation expense for 2020 was
A) $ 228,000.
B) $ 240,000.
C) $ 252,000.
D) $ 264,000.

Question

Quizplus · Accepted Answer

To find depreciation expense for 2020, we need to calculate the Depreciation expense for 2019 and the book value of all equipment at the end of 2020.

Depreciation expense for 2019 = Accumulated Depreciation at Dec. 31, 2019 – Accumulated Depreciation at Dec. 31, 2018
Depreciation expense for 2019 = $960,000 - $720,000 = $240,000

Book Value of all equipment at Dec. 31, 2020 = (Total Cost of Equipment – Acc. Depreciation at Dec 31, 2020)
Book Value of Equipment at Dec. 31, 2020 = (Total Cost of Equipment – Acc. Depreciation at Dec. 31, 2019) - Depreciation Expense for 2020 – Sale of Equipment in 2020
Book Value of Equipment at Dec. 31, 2020 = (Total Cost of Equipment $= Acc. Depreciation at Dec. 31, 2019 $+ Depreciation Expense for 2019 $) - Depreciation Expense for 2020 – Sale of Equipment in 2020
Book Value of Equipment at Dec. 31, 2020 = ($1,680,000 - $240,000) - Depreciation Expense for 2020 - $12,000
Book Value of Equipment at Dec. 31, 2020 = $1,428,000 - Depreciation Expense for 2020 - $12,000

We know that the cost of the equipment sold in 2020 was $60,000 and had a book value of $48,000, so the loss on the sale was $12,000.

To find Depreciation Expense for 2020, we can plug in the values for book value at Dec. 31, 2020 and the loss from the sale of equipment:

$1,428,000 - Depreciation Expense for 2020 - $12,000 = $ 960,000
Depreciation Expense for 2020 = $ 456,000 / 2
Depreciation Expense for 2020 = $ 228,000

Therefore, the depreciation expense for 2020 was $ 228,000.