Equipment costing $27,000 with an estimated salvage value of $2,040 and an estimated life of 4 years was purchased on October 31, 2019. Using the straight-line depreciation method, what is the amount of depreciation expense to be recorded at December 31, 2019?
A)$520
B)$1,560
C)$1,125
D)$1,040

Question

Quizplus · Accepted Answer

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

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

In this case, the cost is $27,000 and the salvage value is $2,040, and the estimated life is 4 years. Therefore:

Depreciation expense = ($27,000 - $2,040) / 4 = $6,240 / 4 = $1,560 per year

Since the equipment was purchased on October 31, 2019, we need to prorate the depreciation expense for the remaining two months of the year.

Depreciation expense for November and December 2019 = ($1,560 / 12) x 2 = $260 + $780 = $1,040

Therefore, the amount of depreciation expense to be recorded at December 31, 2019, is $1,040. The correct answer is D.

Equipment Costing $27,000 with an Estimated Salvage Value of $2,040