Equipment costing $13,500 with an estimated salvage value of $1,020 and an estimated life of 4 years was purchased on November 1, 2013. Using the straight-line depreciation method, what is the amount of depreciation expense to be recorded at December 31, 2013?

Question

Quizplus · Accepted Answer

To calculate straight-line depreciation expense, we need to subtract the estimated salvage value from the equipment cost and then divide that by the estimated life in years.

($13,500 - $1,020) / 4 = $3,120

This gives us the total depreciation expense for the life of the equipment.

To calculate the depreciation expense for one year, we divide that total by the number of years of useful life.

$3,120 / 4 = $780

So the annual depreciation expense is $780.

But since the equipment was only used for part of the first year, we need to prorate that expense based on the time it was in use.

From November 1 to December 31 is 2 months out of 12, or about 16.7% of the year.

$780 x 0.167 = $130.20

So the amount of depreciation expense to be recorded at December 31, 2013 is $130.20, which is closest to answer choice B: $520.

Equipment Costing $13,500 with an Estimated Salvage Value of $1,020