On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of three years or 30,000 hours.Using straight-line depreciation, calculate depreciation expense for the first year, which ends on December 31.
A) $17,500
B) $30,000
C) $12,500
D) $40,000

Question

On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of three years or 30,000 hours.​Using straight-line depreciation, calculate depreciation expense for the first year, which ends on December 31.
A) $17,500
B) $30,000
C) $12,500
D) $40,000

Quizplus · Accepted Answer

The straight-line depreciation expense is calculated by dividing the depreciable cost by the useful life. The depreciable cost is $90,000 (total cost of $120,000 minus any salvage value, which is implied by the depreciable cost given). The useful life is 3 years. Therefore, annual depreciation is $90,000 / 3 = $30,000 per year. However, since the equipment was purchased on June 1, only 7 months of depreciation should be accounted for in the first year. Thus, the depreciation expense for the first year is $30,000 * (7/12) = $17,500.

On June 1, Scotter Company Purchased Equipment at a Cost