Question

Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be:

A) $24000.

B) $35400.

C) $29400.

D) $24600.

Answer 1

The correct answer is C

Step-by-step explanation:

Computing the depreciation expense using the method of straight line as:

Depreciation expense = Cost of assets - Salvage Value / Number of useful years

where

Cost of asset = Purchased cost + Freight charges + Installing cost

= $150,000 + $7,000 + $20,000

= $177,000

Salvage value is $30,000

Number of year useful life of asset is 5 years

So, putting the values above as:

Depreciation expense = $177,000 - $30,000 / 5

Depreciation expense = $147,000 / 5

Depreciation expense = $29,400

Therefore, each year depreciation expense would be $29,400