On 5 May 2013, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of "output" is estimated at 8,000 hours of operation.
-Assume Lloyd uses straight-line depreciation with the half-year convention. Depreciation expense to be recognized in 2013 (the year of purchase) is:

Question

Quizplus · Accepted Answer

The half-year convention assumes that an asset is placed in service in the middle of the year, regardless of the actual date of acquisition. Therefore, only half a year’s worth of depreciation expense is recognized in the year of purchase. 
Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life
Depreciation Expense = ($18,500 - $2,000) / 5 = $3,700
This means that the depreciation expense to be recognized in 2013 is $3,700.

On 5 May 2013, Lloyd Purchased a Machine for $84,000