Multiple Choice
Which of the following is the correct formula to compute annual straight-line depreciation?
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8. Long Lived Assets
Depreciation: Straight Line
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Under the straight-line method of depreciation, what is the average dollar amount of depreciation expense recorded after 1 year for an asset with a cost of $10,000, a residual value of $2,000, and a useful life of 4 years?
A
$2,000
B
$4,000
C
$2,500
D
$8,000
Verified step by step guidance1
Determine the formula for calculating depreciation expense under the straight-line method: \( \text{Depreciation Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} \).
Identify the given values in the problem: \( \text{Cost} = 10,000 \), \( \text{Residual Value} = 2,000 \), and \( \text{Useful Life} = 4 \text{ years} \).
Subtract the residual value from the cost to calculate the depreciable amount: \( \text{Depreciable Amount} = \text{Cost} - \text{Residual Value} = 10,000 - 2,000 \).
Divide the depreciable amount by the useful life to find the annual depreciation expense: \( \text{Depreciation Expense} = \frac{\text{Depreciable Amount}}{\text{Useful Life}} \).
The result of this calculation will give you the average dollar amount of depreciation expense recorded after 1 year.
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