A company purchased new furniture at a cost of $16,000 on January 1. The furniture is estimated to have a useful life of 6 years and a $1,000 salvage value. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

Question

Quizplus · Accepted Answer

The straight-line method of depreciation spreads the cost evenly over the useful life of the asset. In this case, the annual depreciation expense is calculated as follows: 
($16,000 - $1,000) ÷ 6 years = $2,500 per year 
To find the book value of the furniture on December 31 of the first year, we need to subtract one year's worth of depreciation from the original cost: 
$16,000 - $2,500 = $13,500. Therefore, the answer is D.

A Company Purchased New Furniture at a Cost of $16,000