Question

Calculate depreciation for year 2 based on the following information:

Historical cost $40,000
Useful life 5 years
Salvage value $3,000
Year 1 depreciation $7,400
a) $7,000
b) $7,400
c) $8,000
d) $8,600

Answer 1

Using the straight-line depreciation method, the depreciation for year 2 is the same as for year 1, which is $7,400. This assumes a constant annual decrease in value over the asset's useful life.

Step-by-step explanation:

To calculate the depreciation for year 2 for the given asset, we will use the straight-line depreciation method, which assumes the asset will lose the same amount of value each year. Given that the historical cost is $40,000, the useful life is 5 years, and the salvage value is $3,000, the yearly depreciation can be calculated as:

Total Depreciation = Historical Cost - Salvage Value = $40,000 - $3,000 = $37,000

Annual Depreciation = Total Depreciation / Useful Life = $37,000 / 5 years = $7,400 per year

Since the straight-line method results in the same amount of depreciation each year, the depreciation for year 2 is the same as for year 1, which is $7,400. Therefore, the correct answer is option (b) $7,400.