Math Problem Statement

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On March 1, 2022, Jefferson Consulting purchased new computers for $12,840. The computers are expected to last 3 years and will have an estimated residual value of $600. Jefferson Consulting has a December 31 year end.

Required

Prepare the table below showing the yearly depreciation, accumulated depreciation, and net book value of the equipment.

Do not enter dollar signs or commas in the input boxes.

Round your answers to the nearest whole number.

Year Original Cost of Computers Depreciation Expense Accumulated Depreciation Net Book Value 2022 Answer 1 Question 2 12840 Answer 2 Question 2 4080 Answer 3 Question 2 Answer 4 Question 2 2023 Answer 5 Question 2 12840 Answer 6 Question 2 Answer 7 Question 2 Answer 8 Question 2 2024 Answer 9 Question 2 12840 Answer 10 Question 2 Answer 11 Question 2 Answer 12 Question 2 2025 Answer 13 Question 2 12840 Answer 14 Question 2 Answer 15 Question 2 Answer 16 Question 2 600

Solution

To calculate the depreciation, accumulated depreciation, and net book value of the computers, we can use the straight-line depreciation method. This method assumes that the depreciation expense is evenly spread out over the useful life of the asset.

Straight-Line Depreciation Formula:

Depreciation Expense per Year=Original Cost−Residual ValueUseful Life (years)\text{Depreciation Expense per Year} = \frac{\text{Original Cost} - \text{Residual Value}}{\text{Useful Life (years)}}

Given:

  • Original cost of the computers: $12,840
  • Residual value: $600
  • Useful life: 3 years
  • Purchase date: March 1, 2022
  • Year-end: December 31

Step 1: Calculate Yearly Depreciation Expense

Depreciation Expense per Year=12,840−6003=12,2403=4,080\text{Depreciation Expense per Year} = \frac{12,840 - 600}{3} = \frac{12,240}{3} = 4,080

This means that the yearly depreciation expense is $4,080. However, since the computers were purchased on March 1, 2022, the depreciation for the first year (2022) will be prorated based on 10 months of use out of 12 months.

Depreciation Expense for 2022=4,080×1012=3,400\text{Depreciation Expense for 2022} = 4,080 \times \frac{10}{12} = 3,400

Step 2: Fill Out the Table

We can now fill out the table year by year, calculating the accumulated depreciation and the net book value.

YearOriginal Cost of ComputersDepreciation ExpenseAccumulated DepreciationNet Book Value
202212,8403,4003,4009,440
202312,8404,0807,4805,360
202412,8404,08011,5601,280
202512,84068012,240600

Explanation:

  • Depreciation Expense for 2022 is prorated for 10 months of use.
  • Depreciation Expense for 2023 and 2024 is the full $4,080.
  • Depreciation Expense for 2025 is $680, which is the remaining balance that brings the net book value down to the residual value of $600.
  • Accumulated Depreciation adds up each year.
  • Net Book Value is calculated as the original cost minus the accumulated depreciation.

Do you want details on any of these calculations? If so, feel free to ask!

5 Relative Questions:

  1. What other methods of depreciation can be used besides straight-line?
  2. Why is the residual value important in depreciation calculations?
  3. How would the calculation change if the computers were sold before the end of their useful life?
  4. How does accumulated depreciation affect financial statements?
  5. What is the difference between book value and market value?

Tip: Always remember to prorate depreciation for partial-year asset purchases!

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Math Problem Analysis

Mathematical Concepts

Depreciation
Straight-Line Depreciation
Time Value of Money

Formulas

Depreciation Expense per Year = (Original Cost - Residual Value) / Useful Life
Prorated Depreciation = Depreciation Expense per Year * (Months Used / 12)
Net Book Value = Original Cost - Accumulated Depreciation

Theorems

Straight-Line Depreciation Method

Suitable Grade Level

Grades 11-12

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