Question

A company purchased factory equipment on April 1, 2022 for 102,900. It is estimated that the equipment will have a salvage value of16,500 at the end of its 10-year useful life. Using the straight-line method of depreciation, what is the amount to be recorded as depreciation expense at December 31, 2022?

1) $7,718
2) $10,290
3) $8,640
4) $6,480

Answer 1

The depreciation expense recorded at December 31, 2022, for the equipment purchased on April 1, 2022, using the straight-line method, is $6,480. This is calculated by first determining the annual depreciation and then prorating this amount for the 9 months of use in 2022.

Step-by-step explanation:

To calculate the depreciation expense for the year 2022 using the straight-line method, we need to consider the cost of the equipment, its salvage value, and the useful life. The formula for straight-line depreciation is:

Annual Depreciation Expense = (Cost - Salvage Value) / Useful Life

Here, the cost of the equipment is $102,900, the salvage value is $16,500, and the useful life is 10 years. Applying the formula:

Annual Depreciation Expense = ($102,900 - $16,500) / 10

Annual Depreciation Expense = $8,640

Since the company purchased the equipment on April 1, 2022, and the depreciation needs to be recorded at December 31, 2022, it will cover 9 months of the year. Hence, we calculate the partial year depreciation:

Depreciation Expense for 2022 = ($8,640 / 12 months) * 9 months

Depreciation Expense for 2022 = $6,480