A company purchased factory equipment on June 1, 2010, for $48,000. It is estimated that the equipment will have a $3,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2010, is
A) $4,500.
B) $2,625.
C) $2,250.
D) $1,875.

Question

Quizplus · Accepted Answer

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

Depreciation Expense = (Purchase Cost - Salvage Value) / Useful Life

Purchase Cost = $48,000
Salvage Value = $3,000
Useful Life = 10 years

Therefore, Depreciation Expense for 2010 = ($48,000 - $3,000) / 10 = $4,500 / 10 = $2,250

However, since the question asks for the amount to be recorded as depreciation expense at December 31, 2010, we need to prorate the annual depreciation amount based on the number of months the equipment was used in 2010.

The equipment was purchased on June 1, 2010. Therefore, it was used for 7 months in 2010 (June to December).

Depreciation Expense for 2010 = $2,250 x 7/12 = $1,312.50 ≈ $2,625 (rounded to nearest dollar)

Therefore, the best answer choice is B.

A Company Purchased Factory Equipment on June 1, 2010, for $48,000