Question

A company purchased a delivery van for $28,000 with a salvage 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?
A. $5,000
B. $1,667
C. $1400
D. $1250

Answer 1

Answer:

B. $1,667

Explanation:

The computation of the depreciation expense under the straight-line method is shown below:

= (Purchase cost of a delivery van - salvage value) ÷ (estimated useful life)

= ($28,000 - $3,000) ÷ (5 years)

= ($25,000) ÷ (5 years)  

= $5,000

This is a full ear depreciation

Since the delivery van is purchased on September 1 and the company recognize on December 31. So there is a difference of four months. So four months depreciation would be

= $5,000  × 4 months ÷ 12 months

= $1,667