Question

Using a straight-line depreciation schedule, at what amount is the company depreciating its equipment if the cost of the equipment is $45,000 and it has a residual value of $5,000 with a useful life of four years?

Answer 1

We are told the equipment costs $45,000, has a residual value of $5,000, and four years of useful life. In Straight Line Depreciation, the amount for each year is the same no matter the year in its useful life.

Yearly Depreciation = (Cost - Residual Value) ÷ (Number of years of useful life)

= (45000 - 5000) ÷ 4

= 40000 ÷ 4

= 10000

Thus, the company's equipment depreciates $10,000 each year until the end of its useful life.