Stevenson Company purchased a depreciable asset for $250,000 on April 1, 2008.The estimated residual value is $25,000, and the estimated useful life is 5 years.The straight-line method is used for depreciation.What is the balance in accumulated depreciation on May 1, 2011 when the asset is sold?

Question

Quizplus · Accepted Answer

Annual depreciation = (Cost - Residual value) / Useful life 
= ($250,000 - $25,000) / 5 
= $45,000

Accumulated depreciation on May 1, 2011 = 3 years * $45,000/year 
= $135,000

When the asset is sold, there will be depreciation for 1 more month (from May 1 to May 31). 
Depreciation for one month = $45,000 / 12 months * 1 month 
= $3,750

Accumulated depreciation on May 31, 2011 = $135,000 + $3,750 
= $138,750. Therefore, the answer is D ($138,750).

Stevenson Company Purchased a Depreciable Asset for $250,000 on April