Question

On April 1, 2014, Cyclone's Backhoe Co. purchases a trencher for $280,000. The machine is expected to last five years and have a salvage value of $40,000.

1. Compute depreciation expense for both 2014 and 2015 assuming the company uses the straight-line method.

Answer 1

2014 - $ 36,000

2015 - $ 48,000

Step-by-step explanation:

Depreciation Basis

Cost $ 280,000

Salvage Value $ 40,000

Depreciable Basis $ 240,000

Useful Life 5 years

Annual depreciation charge = $ 48,000 ( 240,000/5)

Charge for 9 months of 2014 $ 36,000

Charge for full year 2015 $ 48,000