The Excelsior hotel purchased a limousine costing $100,000 on 1 July 20X2. The limousine has an expected useful life of 8 years and it is estimated it will have a salvage value of $20,000. Assuming the hotel depreciates its fleet of vehicles using the straight line approach, what depreciation entry will be required for the limousine for the year ending 30 June 20X3 (assume no prior depreciation entries have been made for the limousine)?

Question

Quizplus · Accepted Answer

The straight-line depreciation method evenly distributes the cost of an asset over its expected useful life. To calculate the annual depreciation expense, we can use the following formula:

Depreciation expense = (Cost - Salvage value) / Useful life

In this case, the cost of the limousine is $100,000, the salvage value is $20,000, and the useful life is 8 years. Plugging these values into the formula, we get:

Depreciation expense = ($100,000 - $20,000) / 8 = $10,000

Therefore, the entry required for the limousine for the year ending 30 June 20X3 would be:

Debit Depreciation Expense $10,000; Credit Accumulated Depreciation $10,000.

Option B is the only one where the answer is the same as the above calculation.

The Excelsior Hotel Purchased a Limousine Costing $100,000 on 1