Question

A purchase of equipment for $18,000 also involves freight charges of $500 and installation costs of $2,500. The estimated salvage value and useful life are $2,000 and 4 years, respectively. Under the straight-line method, how much is annual depreciation expense?

Answer 1

$4,750

Explanation:

Given:

Cost of the equipment = $18,000

Freight charges = $500

Installation cost = $2,500

Estimated salvage value = $2,000

Estimated useful life = 4 years

Now,

The total cost involved with equipment = $18,000 + $500 + $2,500

= $21,000

The Annual depreciation using the straight-line method is given as:

=
`\frac{\textup{Total cost - salvage value}}{\textup{useful life}}`

on substituting the respective values, we get

Annual depreciation =
`\frac{\textup{21,000 - 2000}}{\textup{4}}`

or

Annual depreciation = $4,750