A company purchased a delivery van for $23,000 with a residual value of $3,000 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

Question

Quizplus · Accepted Answer

Using the straight-line method, we need to calculate the annual depreciation expense first:

Depreciation Expense = (Cost - Residual Value) / Useful Life
Depreciation Expense = ($23,000 - $3,000) / 5
Depreciation Expense = $4,000

Since we need to calculate depreciation expense for only 4 months (from September 1 to December 31), we need to calculate the depreciation for 4/12 or 1/3rd of the year:

Depreciation Expense for 4 months = Depreciation Expense * (4/12)
Depreciation Expense for 4 months = $4,000 * (4/12)
Depreciation Expense for 4 months = $1,333

Therefore, the company should recognize $1,333 in depreciation expense on December 31, Year 1. The best choice is B.

A Company Purchased a Delivery Van for $23,000 with a Residual