Equipment was purchased for $15,000. Freight charges amounted to $700, and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 residual value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

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The total cost of the equipment is the purchase price plus freight charges plus installation costs, which equals $15,000 + $700 + $2,000 = $17,700. The depreciable base is the total cost minus the residual value, or $17,700 - $3,000 = $14,700. Using the straight-line method, the annual depreciation expense is the depreciable base divided by the useful life, or $14,700 / 5 = $2,940.

Equipment Was Purchased for $15,000