Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

8. Long Lived Assets

Depreciation: Straight Line

Financial Accounting

8. Long Lived Assets

Depreciation: Straight Line

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Multiple Choice

If a company uses the straight-line method to depreciate factory equipment, which of the following best describes how monthly depreciation expense is calculated?

Divide the equipment's depreciable cost by its useful life in months.

Multiply the equipment's book value by a fixed percentage each month.

Subtract accumulated depreciation from the equipment's cost each month.

Record the entire cost of the equipment as an expense in the month of purchase.

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Verified step by step guidance

Understand the straight-line depreciation method: This method allocates the cost of an asset evenly over its useful life. It assumes the asset's value decreases at a constant rate each period.

Identify the formula for straight-line depreciation: The monthly depreciation expense is calculated as \( \text{Depreciation Expense} = \frac{\text{Depreciable Cost}}{\text{Useful Life in Months}} \).

Determine the depreciable cost: Depreciable cost is the difference between the asset's purchase price and its estimated salvage value (if any).

Divide the depreciable cost by the useful life in months: This step ensures the depreciation expense is spread evenly across the asset's useful life.

Avoid common misconceptions: Do not multiply the book value by a fixed percentage, subtract accumulated depreciation from the cost, or record the entire cost as an expense in the month of purchase. These approaches do not align with the straight-line method.