Gulf Consulting Co. reported the following on its December 31, 2009, balance sheet: Equipment (at cost).....$700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf's equipment averages 3.5 years at December 31, 2009. What is the book value of Gulf's equipment at December 31, 2009?
A)$490,000
B)$441,000
C)$259,000
D)$210,000 Annual depreciation is ($700,000 70,000) 5 = $126,000
Depreciation for 3.5 years is $126,000 3.5 = $441,000
Book value = $700,000 441,000 = $259,000

Question

Quizplus · Accepted Answer

The book value of Gulf's equipment at December 31, 2009, is calculated as follows: 
- Annual depreciation = ($700,000 x 10%) / 5 = $70,000 
- Accumulated depreciation as of December 31, 2009 = $70,000 x 3.5 = $245,000 
- Book value = Cost - Accumulated depreciation = $700,000 - $245,000 = $455,000 
Therefore, the correct answer is C, as none of the given choices matches the correct book value calculation.