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Straight-line depreciation (Zeibart Company)

On January 1, Zeibart Company purchases equipment for $220,000. The equipment has an estimated useful life of 10 years and expected salvage value of $25,000. The company uses straight-line depreciation. Four years later, economic factors cause the fair value of the equipment to decline to $85,000. On this date, Zeibart examines the equipment for impairment and estimates undiscounted expected cash inflows from this equipment of $115,000

(a) Compute the annual depreciation expense relating to this equipment.

(b) Compute the equipment's net book value at the end of the fourth year.

(d) If the equipment is impaired at the end of the fourth year, compute the impairment loss. (If the equipment is not impaired, enter 0.)

Solution Summary

This response shows how to compute annual depreciation expense using the straight-line method. The response also shows how to compute net book value at the end of a given period and how to compute impairment loss.

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