Adkins Bakery uses the modified half-month convention to calculate depreciation expense in the year an asset is purchased or sold. Adkins has a calendar year accounting period and uses the straight-line method to compute depreciation expense. On March 17, 2018, Adkins acquired equipment at a cost of $220,000. The equipment has a residual value of $43,000 and an estimated useful life of 4 years. What amount of depreciation expense will be recorded for the year ending December 31, 2018? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

First, calculate the annual depreciation expense using the straight-line method:

Depreciation per year = (Cost - Residual Value) / Estimated useful life 
Depreciation per year = ($220,000 - $43,000) / 4 
Depreciation per year = $44,250

Now, we need to apply the modified half-month convention. The equipment was purchased on March 17, 2018, which means that Adkins will only record 9.5 months of depreciation expense for the year ending December 31, 2018.

Depreciation expense = (Depreciation per year / 12) * number of months of use 
Depreciation expense = ($44,250 / 12) * 9.5 
Depreciation expense = $33,187.50

Rounding to the nearest dollar, the answer is $33,188. Therefore, the best choice is C.

Adkins Bakery Uses the Modified Half-Month Convention to Calculate Depreciation