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 $2,075,000? Explain.
Answers:
a. $1,075,000 ($3,150,000 – $2,075,000)
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.