The balance in the equipment account is $750,000, and the balance in the accumulated
depreciation—equipment account is $425,000.
a. What is the book value of the equipment?
b. Does the balance in the accumulated depreciation account mean that the equipment’s
loss of value is $425,000? Explain.
Answer:
a. $325,000 ($750,000 – $425,000)
b. No. Depreciation is an allocation of the cost of the equipment to the periods
benefiting from its use. It does not necessarily relate to value or loss of value.
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