Question

Nelson Company purchase equipment on January 1, 2008 for $27,500 and decided to depreciate the equipment on the straight-line method over its useful life of five years. Assuming the equipments residual value is $3,500, the amount of depreciation expense Nelson should recognize in 2008 is:

A) 2,400

B) 200

C) 4,800

D) 400

Nelson Company purchase equpiment on July 1, 2008 for $27,500 and decided to depreciate the equipment on the straight-line method over its useful life of five years. Assuming the equipments residual value is $3,500, the amount of depreciation expense Nelson should recognize in 2008 is:

A) 2,400

B) 200

C) 4,800

D) 400

PLEASE SHOW WORK FOR EACH ONE

Answer 1

• All working forms part of the answer
• Question #1

--Working

A	Cost	$            27,500.00
B	Residual Value	$              3,500.00
C=A - B	Depreciable base	$            24,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$              4,800.00

--Since annual depreication each year under Straight Line method remains the same, $ 4800 will be depreciated each year.

--Correct Answer = Option ‘C’ $ 4,800

• Question #2

--Working

A	Cost	$            27,500.00
B	Residual Value	$              3,500.00
C=A - B	Depreciable base	$            24,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$              4,800.00

--Asset used in 2008 for a period of 6 months [1 jul to 31 Dec]

--Depreciation expense = $ 4800 x (6months/12months) = $ 2,400

--Correct Answer = Option ‘A’ $ 2,400