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?
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8. Long Lived Assets
Depreciation: Straight Line
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DBQ Company purchased a machine on January 1, Year 1 for $60,000. The company estimated a five year useful life and $8,000 residual value. If the company uses the straight-line method for depreciation, what will be the amount of accumulated depreciation on December 31, Year 2?
A
$10,400
B
$12,000
C
$20,800
D
$24,000
Verified step by step guidance1
Identify the cost of the machine, which is $60,000, and the residual value, which is $8,000.
Determine the useful life of the machine, which is estimated to be 5 years.
Calculate the annual depreciation expense using the straight-line method with the formula: \( \text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} \).
Substitute the given values into the formula: \( \text{Annual Depreciation} = \frac{60,000 - 8,000}{5} \).
To find the accumulated depreciation by December 31, Year 2, multiply the annual depreciation by 2 (since it is the end of the second year).
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