Question

Three years ago a machine was purchased for $5,000. Assuming a ten-year life and straight line depreciation with a no salvage value, which of the following will appear on the income statement and balance sheet respectively after four years?

Select one:

a.

Depreciation expense of $2,000, accumulated depreciation of $2,000.

b.

Depreciation expense of $500, accumulated depreciation of $2,000.

c.

Accumulated depreciation of $2,000, depreciation expense of $500.

d.

Accumulated depreciation of $500, depreciation expense of $2,000.

e.

Depreciation expense of $1,500, accumulated depreciation of $500.

Answer 1

Answer: Option b is correct.
In the straight line method, depreciation=(Cost-Salvage value)/Years of useful life
Given that, cost=$5000, years of useful life=10 years, salvage value=0
Depreciation per year=($5000-0)/10=$500
In 4 years accumulated depreciation will be:
Year 1:$500
Year 2:$500
Year 3:$500
Year 4:$500
=$500+$500+$500+$500=$2000
So, accumulated depreciation of $2000 will appear in balance sheet and depreciation expense of $500 (per year) will appear in income statement.