A company purchased factory equipment on June 1, 2014 for $48,000. It is estimated that the equipment will have a $6,000 residual 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, 2014 is
A) $4,800.
B) $4,200.
C) $2,450.
D) $6,000.

Question

Quizplus · Accepted Answer

The straight-line depreciation method calculates equal depreciation expenses each year over the useful life of the equipment. The formula is: (Cost - Residual Value) / Useful Life. For this equipment, the annual depreciation is ($48,000 - $6,000) / 10 = $4,200. Since the equipment was purchased on June 1, only 7 months of depreciation should be recorded for 2014. Therefore, the depreciation expense for 2014 is $4,200 * (7/12) = $2,450.

A Company Purchased Factory Equipment on June 1, 2014 for $48,000