On January 1, 2016, Woodstock, Inc. purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. How much is the annual depreciation expense assuming use of the straight-line depreciation method?

Question

Quizplus · Accepted Answer

The depreciable cost of the machine is the cost of the machine ($40,000) minus the residual value ($5,000), which is $35,000.

Using the straight-line depreciation method, the annual depreciation expense is calculated by dividing the depreciable cost by the expected useful life:

Annual depreciation expense = Depreciable cost / Useful life 
Annual depreciation expense = $35,000 / 6 
Annual depreciation expense = $5,833.33

Rounding to the nearest dollar, the answer is $6,000 (option B).