Question

Togo’s Sandwiches acquired equipment on April 1, 2021, for $17,500. The company estimates a residual value of $1,900 and a five-year service life.

Required:
Calculate depreciation expense using the straight-line method for 2021 and 2022, assuming a December 31 year-end.

Answer 1

$2,340; $3,120

Step-by-step explanation:

Given that,

Amount of acquiring equipment = $17,500

Residual value = $1,900

Service life = 5 years

Depreciation refers to the fall in the value of the fixed assets with the passage of time.

Here, we are using straight line method,

Depreciation = (Equipment value - Residual value) ÷ Service life

= ($17,500 - $1,900) ÷ 5

= $15,600 ÷ 5

= $3,120

Depreciation expense for 2021 at December 31:

This is only for 9 months from April 1, 2021 to December 31, 2021.

= $3,120 × (9 months/ 12)

= $2,340

Depreciation expense for 2022 at December 31:

This is for the whole year, so the depreciation expense will be $3,120.

Answer 2

$2,340 and $3,120

Step-by-step explanation:

The computation of the depreciation expense using the straight line method is shown below:

= (Original cost - residual value) ÷ (useful life)

= ($17,500 - $1,900) ÷ (5 years)

= ($15,600) ÷ (5 years)

= $3,120

For year 2021, the depreciation is to be charged for 9 months i.e from April 1 to December 31

= $3,120 × 9 months ÷ 12 months

= $2,340

And, for the year 2022, it is same i.e $3,120

In this method, the depreciation is same for all the remaining useful life