Question

On April 30, 2017, Tilton Products purchased machinery for $220,000. The useful life of this machinery is estimated at 8 years, with an $20,000 residual value.

Assume that in its financial statements, Tilton Products uses straight-line depreciation and the half-year convention. Depreciation expense recognized on this machinery in 2017 and 2018 will be _______.
A. $18,750 in 2017 and $27,500 in 2018.
B. $15,000 in 2017 and $30,000 in 2018.
C. $12,500 in 2017 and $25,000 in 2018.
D. $27,500 in 2017 and $13,750 in 2018.

Answer 1

Correct answer is letter C, $12,500 in 2017 and $25,00 in 2018

Step-by-step explanation:

Half year convention is a method used that assumes asset is used for one-half on its first year, irrespective on the date of acquisition. So the computation of depreciation on 2017 is one-half of its annual depreciation using straight line method and full one year on 2018.

Formula : (Cost of an asset - salvage value) / life of an asset

($220,000 - $20,000) / 8 years = $25,000 (annual depreciation) divide by 2 = $12,500

Therefore, there will be $12,500 depreciation on 2017 and $25,000 depreciation on 2018