On January 1, 2014, Woodstock, Inc. purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. How much is the annual depreciation expense assuming use of the straight-line depreciation method?

Question

Quizplus · Accepted Answer

To calculate annual depreciation expense using the straight-line depreciation method, the following formula can be used:

Depreciation Expense = (Cost of Asset - Residual Value) / Useful Life

In this case, the cost of the asset is $40,000 + $1,000 = $41,000, the residual value is $5,000, and the useful life is 6 years.

Depreciation expense = ($41,000 - $5,000) / 6 = $6,000

Therefore, the annual depreciation expense is $6,000.