On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021?

Book value= $16,000

Explanation:

Giving the following information:

On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value.

First, we need to calculate the annual depreciation. Then, we can determine the accumulated depreciation and the book value on January 1, 2021:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (50,000 - 10,000)/5= 8,000

Accumulated depreciation= 8,000*3= $24,000

Book value= 40,000 - 24,000= $16,000

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