Question

Funtastic operates on a calendar year. On January 1st, 2017, Funtastic Company placed a new asset into service. The cost of the asset was $50,000 with an estimated 5-year life and $10,000 salvage value. What is the depreciation expense for 2017 if Funtastic Company uses the straight-line method of depreciation?

Answer 1

$8,000

Step-by-step explanation:

To calculate depreciation on a straight line method the following formulae will be used:

Asset Cost - Salvage Value/Estimated life of Asset = Depreciation

Also, if the asset was purchased during the year then the depreciation should be on pro-rate basis. However, here the asset was bought on 1st January so it was operational for the whole year.

Calculation as follows:

50,000 - 10,000 = 40,000

40,000 / 5 = 8,000

Hence, depreciation would be $8,000 when calculated on straight-line method for the year 2017.

Answer 2

Depreciation expenses for 2007 is $8000

Step-by-step explanation:

Depreciation/year = (Cost - Residual value)/ number of useful life

Depreciation 2007 = ($50,000-$10,000) / 5

= $40,000/5 = $8000