Question

a company purchased factory equipment on june 1, 2022 for $128,000. it is estimated that the equipment will have an $8,000 salvage value at the end of its 10-year useful life. using the straight-line method of depreciation, the amount to be recorded as depreciation expense at december 31, 2022 is a. $12,000. b. $7,000. c. $6,000. d. $5,000.

Answer 1

Using the straight-line method, the annual depreciation for the factory equipment is $12,000. Since the asset was in use for only 6 months in the year of acquisition, the depreciation expense for the year 2022 should be c. $6,000.

Step-by-step explanation:

The student has asked how to calculate the depreciation expense for the first year using the straight-line method of depreciation. The formula for straight-line depreciation is: Annual Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life. Given that the cost of the factory equipment is $128,000, with a salvage value of $8,000, and a useful life of 10 years, you would first calculate the annual depreciation:

Annual Depreciation = ($128,000 - $8,000) / 10 = $12,000 per year.

However, since the equipment was purchased on June 1, 2022, and the depreciation expense is needed for the six months till December 31, 2022, you need to prorate the annual depreciation:

Depreciation Expense for 6 months = $12,000 / 2 = $6,000.

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