Question

Use the straight-line depreciation method to calculate the depreciation for the

following scenario. Company XYZ bought a car for $30,000. Company XYZ
expects to use this car for four years and at the end of the four years they will sell
the car for $5,000. How much will the car depreciate each year?

Answer 1

The straight-line depreciation for the car purchased by Company XYZ is $6,250 per year, calculated by subtracting the salvage value from the initial cost and dividing by the useful life.

Step-by-step explanation:

Calculating Straight-Line Depreciation

To calculate the straight-line depreciation of the car purchased by Company XYZ, we need to know the initial cost of the car, the salvage value at the end of its use, and the useful life of the asset. In this scenario, the initial cost is $30,000 and the salvage value after four years is $5,000. The useful life is given as four years.

The formula for straight-line depreciation is:

Annual Depreciation Expense = (Cost - Salvage Value) / Useful Life

So, for this car:

Annual Depreciation Expense = ($30,000 - $5,000) / 4 = $25,000 / 4 = $6,250 per year

Therefore, the car will depreciate by $6,250 each year over the four years.

Answer 2

To calculate the depreciation for the scenario using the straight-line depreciation method, we need to subtract the salvage value (the value of the car at the end of its useful life) from the original cost of the car, and then divide that amount by the number of years of useful life.

The calculation will be:

Depreciation per year = (Cost of car - Salvage value) / Useful life

Where:

Cost of car = $30,000

Salvage value = $5,000

Useful life = 4 years

Substituting the values in the formula, we get:

Depreciation per year = ($30,000 - $5,000) / 4 years

Depreciation per year = $25,000 / 4 years

Depreciation per year = $6,250

Therefore, the car will depreciate by $6,250 each year for the four years of its useful life using the straight-line depreciation method.