Hot Wort Ltd. purchased equipment on April 1, 2014, for $140,000. The residual value is $20,000 and the estimated life is 6 years or 55,000 hours. Compute depreciation expense for the year ending December 31, 2014 if Hot Wort Ltd. uses the straight-line method of depreciation.

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Quizplus · Accepted Answer

The straight-line depreciation method calculates annual depreciation by subtracting the residual value from the cost and dividing by the useful life. For 2014, the depreciation is prorated for 9 months (April to December). Annual depreciation = ($140,000 - $20,000) / 6 = $20,000. For 9 months: $20,000 * (9/12) = $15,000.