Final answer:
The annual straight-line depreciation for the asset is $45,000. For the acquisition year, only 3 months of depreciation are recognized, totaling $11,250. For the following year, the full annual amount of $45,000 is recognized.
Step-by-step explanation:
The depreciation for a fixed asset acquired on October 1 for $250,000 with an estimated life of 5 years and a residual value of $25,000 using the straight-line method can be calculated as follows. The annual depreciation expense is computed by subtracting the residual value from the cost of the asset and then dividing by the estimated useful life. The formula for straight-line depreciation is (Cost - Residual Value) ÷ Useful Life. Thus, ($250,000 - $25,000) ÷ 5 = $45,000 per year.
However, for the year of acquisition, you have to prorate the annual depreciation based on the number of months the asset was in use.
Since it was acquired on October 1 and the fiscal year ends on December 31, only 3 months of depreciation should be recognized in the acquisition year.
This amounts to $45,000 ÷ 12 months × 3 months = $11,250.
Thus, the depreciation expense for the year of acquisition is $11,250 and for the following full year, it is the full annual amount of $45,000.
Therefore, the correct answer is: a. year of acquisition, $11,250; following year, $45,000.