JKL Company purchased a car for $21,000 on January 1, 2016. The vehicle is estimated to have a useful life of 10 years, at which point it will have a residual value of $1,000. JKL Company uses the straight-line method to account for depreciation. What is the accumulated depreciation and book value respectively in 5 years?
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To find the accumulated depreciation and book value after 5 years, we need to determine the annual depreciation expense.
The annual depreciation expense can be calculated using the straight-line method, which is:
Depreciation expense = (Cost - Residual value) / Useful life
In this case, the cost of the car is $21,000, the residual value is $1,000, and the useful life is 10 years.
Depreciation expense = ($21,000 - $1,000) / 10 = $2,000
To find the accumulated depreciation after 5 years, we multiply the annual depreciation expense by the number of years:
Accumulated depreciation = Depreciation expense * Number of years
Accumulated depreciation = $2,000 * 5 = $10,000
The accumulated depreciation after 5 years is $10,000.
To find the book value after 5 years, we subtract the accumulated depreciation from the initial cost:
Book value = Cost - Accumulated depreciation
Book value = $21,000 - $10,000 = $11,000
The book value after 5 years is $11,000.
To calculate the accumulated depreciation and book value of the car in 5 years, we need to determine the annual depreciation expense.
The annual depreciation expense using the straight-line method can be calculated by subtracting the residual value from the initial cost of the car and dividing it by the useful life.
For this given scenario:
Initial cost = $21,000
Useful life = 10 years
Residual value = $1,000
Annual depreciation expense = (Initial cost - Residual value) / Useful life
= ($21,000 - $1,000) / 10
= $20,000 / 10
= $2,000
Since we know the annual depreciation expense and the useful life of the asset, we can find the accumulated depreciation for 5 years:
Accumulated depreciation = Annual depreciation expense * Number of years
= $2,000 * 5
= $10,000
Now, to determine the book value after 5 years, we subtract the accumulated depreciation from the initial cost:
Book value = Initial cost - Accumulated depreciation
= $21,000 - $10,000
= $11,000
Therefore, after 5 years, the accumulated depreciation is $10,000, and the book value is $11,000.