Question

A company purchased new computers at a cost of $14,000 on October 1. The computers are estimated to have a useful life of 4 years and a residual value of $2,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the computers for the first year ended December 317

O $3.000
O $1,000
O $750
O $250
O $875

Answer 1

The annual depreciation expense for the new computers is $3,000 when using the straight-line method. However, for the first year which accounts for only 3 months, the depreciation expense would be prorated to $750.

Step-by-step explanation:

The question asks about calculating the depreciation expense for computers using the straight-line method. To calculate the annual depreciation expense, we subtract the residual value from the cost and divide by the useful life. The cost of the computers is $14,000 and the residual value is $2,000, giving us a depreciable base of $12,000. Over the useful life of 4 years, this results in an annual depreciation of $3,000.

However, since the computers were purchased on October 1st, the depreciation expense for the first year would be prorated for the 3 months of that financial year (October to December). Therefore, we need to calculate the quarterly depreciation expense which is $3,000/4 = $750. As only one quarter is applicable for the first year, the depreciation expense is indeed $750 for the period ending December 31.