Question

Rhoundakona Corporation bought property, plant, and equipment on January 1, 2014, at a cost of $35,000. Estimated residual value is $5,000, and the estimated useful life is 8 years. The company uses straight-line depreciation. On January 1, 2017, Rhoundakona's management sells the asset for $25,000. The balance in Accumulated Depreciation on January 1, 2017, is:

a) $13,125
b) $4,375
c) $3,750
d) $11,250

Answer 1

The accumulated depreciation of the asset for Rhoundakona Corporation on January 1, 2017, using the straight-line method, is $11,250.

Step-by-step explanation:

The Rhoundakona Corporation's accumulated depreciation on January 1, 2017, can be calculated using the straight-line depreciation method. To determine this, one must first calculate the annual depreciation expense, which is the cost of the asset minus its estimated residual value, divided by the estimated useful life. The depreciable amount is $35,000 (cost) - $5,000 (residual value) = $30,000. The annual depreciation expense is then $30,000 / 8 years = $3,750 per year. By January 1, 2017, the asset has been owned for 3 complete years, so the accumulated depreciation is $3,750 per year x 3 years = $11,250. Therefore, the correct answer is d) $11,250.