Rock Company purchased a depreciable asset for $500,000 on April 1, 2012. The estimated salvage value is $50,000, and the estimated total useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2015 when the asset is sold?

Question

Quizplus · Accepted Answer

Annual depreciation = (Cost - Salvage value) / Useful life = ($500,000 - $50,000) / 5 = $90,000
Accumulated depreciation as of May 1, 2015 = 3 years * $90,000 = $270,000
When the asset is sold, depreciation expense will be recorded up to the date of the sale, which is one month later. Therefore, depreciation for May 2015 = ($90,000 / 12) * 1 = $7,500
Balance in accumulated depreciation on May 1, 2015 = $270,000 + $7,500 = $277,500.

Rock Company Purchased a Depreciable Asset for $500,000 on April