Florida General Contractor Practice Exam

A company purchased equipment for 20,000 with a salvage value of 5,000. What will be its book value after 4 years using straight line depreciation?

1. 12,000

2. 15,000

3. 17,000

4. 10,000

The correct answer is: 12,000

To determine the book value of the equipment after 4 years using straight-line depreciation, first calculate the annual depreciation expense. The straight-line depreciation formula is: Annual Depreciation = (Cost of the Asset - Salvage Value) / Useful Life In this case, the cost of the equipment is $20,000, the salvage value is $5,000, and assuming a useful life of 10 years (a common estimate for equipment), the annual depreciation would be: Annual Depreciation = ($20,000 - $5,000) / 10 years = $15,000 / 10 = $1,500 per year. Over 4 years, the total depreciation would be: Total Depreciation = Annual Depreciation × Number of Years Total Depreciation = $1,500 × 4 = $6,000. Subtracting the total depreciation from the original cost gives the book value: Book Value = Cost of the Asset - Total Depreciation Book Value = $20,000 - $6,000 = $14,000. However, it appears there may be an aspect of the question that wasn't taken into consideration regarding the possible useful life. If a different useful life leads to a