Suppose a business purchases equipment for $17 comma 000 and depreciates it over 5 years with the straight-line method until it reaches its salvage value of $2000 (see the figure below). Assuming that the depreciation can be for any part of a year, answer the questions to the right.

Question

Suppose a business purchases equipment for ​$17 comma 000 and depreciates it over 5 years with the​ straight-line method until it reaches its salvage value of ​$2000 ​(see the figure​ below). Assuming that the depreciation can be for any part of a​ year, answer the questions to the right.
Years
Dollars
minus5000minus10 comma 000minus15 comma 000|2|4|6font size decreased by 2 17 comma 000font size decreased by 2 14 comma 000font size decreased by 2 11 comma 000font size decreased by 2 8000font size decreased by 2 5000font size decreased by 2 2000minus20 comma 000
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A coordinate system has a horizontal axis labeled Years from 0 to 6 in increments of 2 and a vertical axis labeled Dollars from 0 to 20000 in increments of 5000. A line segment falls from left to right from the plotted point (0, 17,000) to the plotted point (5, 2000) passing through the plotted points (1, 14,000), (2, 11,000), (3, 8000), and (4, 5000). Each point is labeled with its vertical coordinate.
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GPT-4o mini · Answer

To calculate the annual depreciation expense using the straight-line method, you can follow these steps:

Determine the cost of the equipment: $17,000
Determine the salvage value: $2,000
Determine the useful life: 5 years

The formula for annual depreciation using the straight-line method is:

\[ \text{Annual Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}} \]

Plugging in the values:

\[ \text{Annual Depreciation} = \frac{17,000 - 2,000}{5} = \frac{15,000}{5} = 3,000 \]

So, the annual depreciation expense is $3,000.

Next, let's find the book value of the equipment at the end of each year.

End of Year 0: \[ \text{Book Value} = 17,000 \]
End of Year 1: \[ \text{Book Value} = 17,000 - 3,000 = 14,000 \]
End of Year 2: \[ \text{Book Value} = 14,000 - 3,000 = 11,000 \]
End of Year 3: \[ \text{Book Value} = 11,000 - 3,000 = 8,000 \]
End of Year 4: \[ \text{Book Value} = 8,000 - 3,000 = 5,000 \]
End of Year 5: \[ \text{Book Value} = 5,000 - 3,000 = 2,000 \]

In conclusion, the book values at the end of each year are:

End of Year 0: $17,000
End of Year 1: $14,000
End of Year 2: $11,000
End of Year 3: $8,000
End of Year 4: $5,000
End of Year 5: $2,000

This matches the information depicted on your graph, showing a linear depreciation down to the salvage value over the 5-year period.