Capital equipment costing $250,000 today has 50,000 salvage value at the end of 5 years. If the straight line depreciation method is used, what is the book value of the equipment at the end of two years?

The book value of the equipment at the end of two years is $170,000.

Annual depreciation=(Cost-Salvage value)

Annual depreciation=$250,000-$50,000/5

Annual depreciation=$200,000/5

Annual depreciation= $40,000

Accumulated depreciation:

Accumulated depreciation=($40,000 ×2)

Accumulated depreciation=$80,000

Book value of equipment:

Book value of equipment=$250,000 - $80,000

Book value of equipment=$170,000

Inconclusion the book value of the equipment at the end of two years is $170,000.

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The book value of the equipment at the end of two years = $170,000.

Explanation:

a) Data and Calculations:

Cost of capital equipment = $250,000

Salvage value =                         50,000

Depreciable value =             $200,000

Period of useful life = 5 years

Depreciation rate under the straight-line depreciation method =

$200,000/5 = $40,000

This implies that the annual depreciation expense will be $40,000.

For two years, the accumulated depreciation will be $80,000 ($40,000 * 2)

The book value of the equipment at the end of two years will be $170,000 ($250,000 - $80,000).

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