Question

On January 1, 2016, Woodstock, Inc. purchased a machine costing $40,000 Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000 How much is the annual depreciation expense assuming use of the straight-line depreciation method?

a. $6,100.
b. $6,000.
c. $5,950.
d. $5,750.

Answer 1

The annual depreciation expense for the machine purchased by Woodstock, Inc. is $6,000 using the straight-line depreciation method.

Step-by-step explanation:

The annual depreciation expense for Woodstock, Inc.'s machine using the straight-line depreciation method can be calculated as follows:

Total Cost of Machine = Cost of Machine + Transportation and Installation
Total Cost of Machine = $40,000 + $1,000 = $41,000

Depreciable Amount = Total Cost of Machine - Residual Value
Depreciable Amount = $41,000 - $5,000 = $36,000

Annual Depreciation Expense = Depreciable Amount / Useful Life of the Machine
Annual Depreciation Expense = $36,000 / 6 years = $6,000

Therefore, the correct answer is b. $6,000.