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 $725,000? Explain.
Answer:
a. $650,000 ($1,375,000 – $725,000)
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.