On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years or 30,000 hours. Using straight-line depreciation, calculate depreciation expense for the first year, which ends on December 31.

A) $17,500
B) $30,000
C) $12,500
D) $40,000

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Miguel Angel · Accepted Answer

Final Answer : A, Explanation :  The straight-line depreciation expense is calculated by dividing the depreciable cost by the useful life. The depreciable cost is $90,000 (total cost of $120,000 minus salvage value, which is implied by the depreciable cost). The useful life is 3 years. Therefore, annual depreciation expense is $90,000 / 3 = $30,000. However, since the equipment was purchased on June 1, only 7 months of depreciation should be accounted for in the first year. Thus, the depreciation expense for the first year is ($30,000 / 12) * 7 = $17,500.

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