Question

Adkins Bakery uses the modified halfminusmonth convention to calculate depreciation expense in the year an asset is purchased or sold. Adkins has a calendar year accounting period and uses the straightminusline method to compute depreciation expense. On March​ 17, 2018, Adkins acquired equipment at a cost of $ 140 comma 000. The equipment has a residual value of $ 42 comma 000 and an estimated useful life of 8 years. What amount of depreciation expense will be recorded for the year ending December​ 31, 2018?​ (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest​ dollar.)

Answer 1

To calculate depreciation expense using the modified half-month convention for the year ending December 31, 2018, subtract the residual value from the cost of the equipment and then divide it by the estimated useful life in months. Multiply this monthly depreciation expense by the number of months the asset is available for use in the first year to get the depreciation expense for the year.

Step-by-step explanation:

To calculate depreciation expense using the modified half-month convention, you need to determine the number of months that the asset is available for use in the first year. In this case, the equipment was acquired on March 17, 2018, so it is available for use for 9 and a half months in 2018 (from March 17 to December 31).

Next, you need to calculate the monthly depreciation expense by subtracting the residual value from the cost of the equipment and then dividing it by the estimated useful life in months. The monthly depreciation expense is ($140,000 - $42,000) / (8 x 12) = $825.

Finally, you can calculate the depreciation expense for the year ending December 31, 2018 by multiplying the monthly depreciation expense ($825) by the number of months the asset is available for use in the first year (9.5 months). The depreciation expense for the year ending December 31, 2018 is $7,837.50.

Answer 2

The correct answer is $9187.5.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Asset cost = $140,000

Residual value = $42,000

Life period = 8 years

So, Annual depreciation can be calculated by using following method:

Annual depreciation = ( Asset cost - Residual value) ÷ Life period

= ($140,000 - $42,000) ÷ 8

= $12,250

As depreciation is to be recorded till Dec.31

So, total time period = Apr - Dec = 9 months

So, Depreciation expense till Dec.31 = $12,250 × (9 ÷ 12)

= $9,187.5

Hence, Depreciation expense till Dec.31 is $9,187.5.