The balance in the equipment account is $3,150,000, and the balance in the accumulated depreciation—equipment account is $2,075,000.

The balance in the equipment account is $3,150,000, and the balance in the accumulated depreciation—equipment account is $2,075,000.

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.