Question

A company purchased a delivery van for $27,700 with a salvage value of $3,100 on October 1, Year 1. It has an estimated useful life of 6 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1? (note: the van was owned for 3 months the first year of ownership)

Group of answer choices

$4,617.

$4,100.

$1,539.

$1,025.

Answer 1

To answer this problem, we must first compute how much is the annual depreciation expense.

Based on the above computations, the annual depreciation expense equals $4,100. Note that for Year 1, the depreciation expense is equivalent to only four months (September to December). Therefore, we will allocate the said annual depreciation expense for four months as follows.

Year 1 Depreciation Expense = Annual Depreciation Expense x 4/12

Year 1 Depreciation Expense = $4,100 x4/12

Year 1 Depreciation Expense = $1,367