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On April 2,2017,Victor,Inc.acquired a new piece of filtering equipment.The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years.
-If Victor uses straight-line depreciation with the half-year convention,the book value of the equipment at December 31,2018 will be:
A)$90,000.
B)$107,500.
C)$106,667.
D)$105,000.

Question

Quizplus · Accepted Answer

The straight-line depreciation expense per year is calculated as (Cost - Residual Value) / Useful Life. For this equipment, it's ($160,000 - $20,000) / 4 = $35,000 per year. With the half-year convention, for the first and last years, only half of the annual depreciation is recognized. So, for 2017, the depreciation expense would be $17,500 (half of $35,000). For a full year in 2018, the depreciation expense is $35,000. The total depreciation by the end of 2018 is $17,500 (2017) + $35,000 (2018) = $52,500. The book value at December 31, 2018, is the cost minus accumulated depreciation: $160,000 - $52,500 = $107,500.

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