Question

Cardco Inc. has an annual accounting period that ends on December 31. During the current year a depreciable asset that cost $42,000 was purchased on September 1. The asset has a $4,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a five-year life. What is the total depreciation expense for the current year

Answer 1

Answer: $2,533.33

Explanation:

First you need to calculate the annual depreciation:

= (Cost of asset - Salvage value) / Useful life

= (42,000 - 4,000) / 5

= 38,000 / 5

= $7,600

The asset was bought on September 1 and needs to be depreciated for the months of the year it was in the business. That would be September to December which is 4 months.

Depreciation for that year is:

= 7,600 * 4/12 months

= $2,533.33