Question

On January 1, Poodle Company purchases equipment for $120,000. The equipment is expected to have a useful life of 4 years and will have no value a the end of that period. Poodle allocates the cost equally over the period of use so the depreciation expense that must be recognized for the year is

a)$5,000.
b)$30,000.
c)$120,000.
d)$25,000.

Answer 1

The depreciation expense that must be recognized for the year is b)$30,000.

Step-by-step explanation:

This is because the company purchased equipment for $120,000 with a useful life of 4 years and no residual value.

To allocate the cost over the period of use, Poodle Company uses the straight-line depreciation method.

This method evenly spreads the cost over the useful life of the equipment.

To calculate the annual depreciation expense, we divide the total cost by the number of years:

Total cost / Useful life = Depreciation expense

$120,000 / 4 = $30,000

Therefore, Poodle Company should recognize $30,000 as the depreciation expense for the year. The correct answer is b)$30,000. This is calculated using the straight-line depreciation method, dividing the total cost by the number of years.