Equipment costing $80,000 with a useful life of 8 years and no salvage value is being depreciated using the straight-line method. After 3 years, what is the book value?
Correct Answer
A) $50,000
Annual depreciation = $80,000 ÷ 8 years = $10,000. After 3 years, accumulated depreciation = $10,000 × 3 = $30,000. Book value = $80,000 - $30,000 = $50,000.
Why This Is the Correct Answer
Straight-line depreciation spreads cost evenly over useful life. Annual depreciation = $80,000 ÷ 8 = $10,000/year. After 3 years, accumulated depreciation = $10,000 × 3 = $30,000. Book value = $80,000 − $30,000 = $50,000.
Why the Other Options Are Wrong
Option B: $30,000
$30,000 is the accumulated depreciation after 3 years, not the book value. This is the amount subtracted from cost, not the remaining asset value.
Option C: $60,000
$60,000 would be the book value after only 2 years ($80,000 − $20,000), not 3. Selecting this answer means applying 2 years of depreciation instead of 3.
Option D: $20,000
$20,000 would be the book value after 6 years of depreciation ($10,000 × 6 = $60,000; $80,000 − $60,000 = $20,000). This answer applies too many years of depreciation.
Memory Technique
Straight-line = equal slices per year. Formula: Book Value = Cost − (Annual Depreciation × Years). Annual Depreciation = Cost ÷ Life. Here: $80K ÷ 8 = $10K/yr × 3 yr = $30K taken; $80K − $30K = $50K remains.
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