Question

On August 1, 2020, Major Link Inc. purchased a new piece of equipment that cost $25,000. The estimated useful ife is five years, and estimated residual value is $2.500

Assume Major Link purchased the equipment on August 1, 2000. I Major Link uses the straight-line method for depreciation, what is the depreciation expense for the year ended December 31. 2020 (Round your answer to the nearest whole dollar)
A. $2.083
B. $1.500
C. $1.875
D. $4,500

Answer 1

The depreciation expense using the straight-line method for the equipment purchased by Major Link Inc. for the year ended December 31, 2020, is $1,875, considering only five months of depreciation since the purchase date.

Step-by-step explanation:

To calculate the depreciation expense for the year ended December 31, 2020, using the straight-line method, we first subtract the estimated residual value from the cost of the equipment. This gives us the total amount that will be depreciated over the equipment's useful life. The formula for straight-line depreciation is: (Cost - Residual value) ÷ Useful life.

In this case, the calculation is ($25,000 - $2,500) ÷ 5 years = $4,500 per year. Since the equipment was purchased on August 1, 2020, only five months of depreciation need to be accounted for in the year 2020. Therefore, the depreciation expense for the year is $4,500 ÷ 12 months × 5 months = $1,875.