Question

The Mike Corporation spent $8,400,000 for equipment. The equipment was expected to have a 7-year life...

The Mike Corporation spent $8,400,000 for equipment. The equipment was expected to have a 7-year life and a residual value of $700,000. The Corporation intends to use the straight-line method to depreciate all its assets.

Calculate the equipment depreciation expense the Corporation will record for the second year it uses the equipment.

a.

$1,200,000
b.

$1,714,286
c.

$1,571,429
d.

$1,100,000
Business   Accounting   
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Answer #1

Answer : Option D ( 11,00,000 $ )

Cost of Equipment = $ 84,00,000

Salvage Value = $ 7,00,000

Useful life = 7 Years

Depreciation under straight line method = ( Cost - Salavage value ) / useful life

Depreciation for first Year = ( 84,00,000 - 7,00,000 ) / 7 Years

= 11,00,000 $

For Second Year = ( 84,00,000 - 7,00,000 ) / 7

  = 11,00,000 $

Note : Under straight line depreciation method asset shoul be depreciated equally over

the useful life of the asset after deducting salvage value .

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