A company purchased a new delivery van at a cost of $45,000 on July 1. The delivery van is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?
A) $4,000.
B) $7,000.
C) $3,500.
D) $3,250.
E) $6,500.

Question

Quizplus · Accepted Answer

The straight-line method of depreciation allocates the cost of the asset evenly over its useful life.

To calculate the annual depreciation expense:
Cost of asset - Salvage value / estimated useful life in years 
$45,000 - $3,000 / 6 = $7,000 
However, since the van was purchased on July 1, we only need to account for depreciation for half a year (6/12 = 0.5).

$7,000 × 0.5 = $3,500 depreciation expense for the first year ended December 31. Therefore, option C is the correct answer.

A Company Purchased a New Delivery Van at a Cost