On 2 April 2013, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years.
-Refer to the above information. Assume that in its financial statements, Victor uses straight-line depreciation and rounds depreciation for fractional years to the nearest whole month. Depreciation recognized on this equipment in 2013 and 2014 will be:

Question

Quizplus · Accepted Answer

Using straight-line depreciation, the annual depreciation expense would be calculated as:

($450,000 - $10,000)/5 years = $88,000 per year

Depreciation for 2013: 
The equipment was acquired on October 1, 2013, so it was in use for 3 months in 2013 (October, November, and December). Fractional years are rounded to the nearest whole month, so the depreciation for 2013 would be:

($450,000 - $10,000) x 3/12 / 5 = $26,250

Depreciation for 2014: 
The equipment was in use for 12 months, so the depreciation for 2014 would be:

($450,000 - $10,000) / 5 = $88,000

Therefore, the total depreciation recognized on this equipment in 2013 and 2014 would be $26,250 + $88,000 = $114,250.

The only option that matches this calculation is D.