Question

On May 1, Year 1, Best Buy purchased an asset for $12,000, with a $1,500 estimated salvage value, and a 6-year useful life. How much is the Year 1 depreciation expense using the straight-line method?

Answer 1

To compute the annual depreciation expense using the straight-line method, subtract the salvage value from the purchase price and divide by the useful life.

For Best Buy's asset, the Year 1 depreciation expense is $1,750.

Step-by-step explanation:

The question pertains to calculating the depreciation expense of an asset using the straight-line method.

To determine the Year 1 depreciation expense for Best Buy's asset, you would subtract the salvage value of $1,500 from the purchase price of $12,000, resulting in a depreciable base of $10,500.

You would then divide this amount by the useful life of the asset, which is 6 years, to get the annual depreciation expense.

So, the calculation is as follows:

• Purchase Price: $12,000
• Salvage Value: $1,500
• Useful Life: 6 years

Using the straight-line method formula:

Depreciation Expense = (Purchase Price - Salvage Value) / Useful Life

Depreciation Expense = ($12,000 - $1,500) / 6 = $10,500 / 6 = $1,750

Therefore, the Year 1 depreciation expense is $1,750.