Question

A company that uses accrual-basis accounting purchased equipment on July 1 of the current year for $20,000. The company expects to use the equipment consistently for four years, and will record ________ depreciation in its December 31 financial statements.

Answer 1

Answer:

$2,500

Explanation:

Acquisition cost = $20,000

Expected useful life = 4 years

Therefore, annual depreciation = $\frac{Cost}{Useful Life} =\frac{20,000}{4} = 5,000$

However, given that there are 6 months from July 1 (the date of acquisition) to December 31 (the end of the period), the amount of depreciation to be recorded within that period

= $\frac{6 Months}{12 Months} * Annual Depreciation$

= 6/12 * 5,000

= $2,500.