Buggy Company purchased equipment on June 3, 2012, for $100,000. The residual value is zero and the estimated life is 10 years. Compute depreciation expense for the year ending December 31, 2012, if the company uses the straight-line method of depreciation.

Question

Quizplus · Accepted Answer

The annual depreciation expense using the straight-line method can be calculated as:

Depreciation expense = (cost - residual value) / estimated life

Depreciation expense = ($100,000 - $0) / 10 years = $10,000 per year

However, since the equipment was purchased on June 3, 2012, the company will only use the equipment for 7 months in 2012 (June 3 to December 31). Therefore, the depreciation expense for 2012 will be 7/12 x $10,000 = $5,833.

Therefore, the best answer is B) $5,833.

Buggy Company Purchased Equipment on June 3, 2012, for $100,000