Question

A company purchased an equipment system for $130,000 on January 2. The company expects the equipment to last for four years or 20,000 hours of operation, with $10,000 salvage value. During the first year, the equipment was in operation for 6,000 hours.

Using the straight-line method calculate the equipment’s annual depreciation.

Answer 1

Answer:

$30,000 annually

Explanation:

Formula for calculating straight line depreciation expense:

Straight line depreciation expense = ( Cost Of Asset-Salvage Value) / Useful Life Of Asset

Where:

· Cost of the asset is the purchase price of the asset

· Salvage value is the value of the asset at the end of its useful life

· Useful life of asset represents the number of periods/years in which the asset is expected to be used by the company.

here,

  Cost of the asset =   $130,000

Salvage value = $10,000

Useful life of asset = 4 years

therefore,

Annual Depreciation expense = ($130,000 - $10,000) / 4

=$120,000 / 4

= 30,000 each  year