Equipment was purchased for $150,000 on July 1, 2020. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment which was finally ready to use on October 1, 2020. It is estimated that the equipment will have a $0 salvage value at the end of its 5-year useful life. Depreciation expense for 2020 and 2021 using the straight-line method will be Group of answer choices $7,500 and $30,000 $8,450 and $34,000 $7,850 and $31,400 $8,850 and $35,400
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Equipment was purchased for $150,000 on July 1, 2020. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment which was finally ready to use on October 1, 2020. It is estimated that the equipment will have a $0 salvage value at the end of its 5-year useful life.
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