Question

On October 1, 2022, Ivanhoe Company places a new asset into service. The cost of the asset is $87500 with an estimated 5-year life and $24500 salvage value at the end of its useful life. What is the depreciation expense for 2022 if Ivanhoe Company uses the straight-line method of depreciation? $4375. $8750. $17500. $3150.

Answer 1

$3150

Step-by-step explanation:

Given:

Cost of the asset purchased = $87500 (on 1st October. 2022)

Salvage value at the end of its useful life = $24500

Useful life estimated = 5 years

Question asked:

What is the depreciation expense for 2022 if Ivanhoe Company uses the straight-line method of depreciation?

Solution:

As we know:

`Straight-Line\ Depreciation\ Expense=(Cost\ - Salvage\ Value)/(Useful\ Life\ of\ the\ Asset)`

`=(87500-24500)/(5) =(63000)/(5) =12600`

Depreciation expenses per year = $12600

But we have to find depreciation expenses for 2022 for:-

From 1st October, 2022 to 31st December, 2022 = 3 months.

Straight-Line Depreciation Expense for Partial Year =

`D*(N)/(12) \\\\ D=Depreciation\ expense\ for\ a\ complete\ year.\\N= Number\ of\ months\ during\ which\ the\ fixed\ asset\ was\ available\ for\ use`

Depreciation Expense for 3 months =
`12600*(3)/(12) =(37800)/(12) =3150`

Therefore, the depreciation expense for 2022 if Ivanhoe Company uses the straight-line method of depreciation is $3150.