Question

Taco Hut purchased equipment on May 1, 2021, for $17,000. Residual value at the end of an estimated eight-year service life is expected to be $2,000. 

Calculate depreciation expense using the straight-line method for 2021 and 2022, assuming a December 31 year-end. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar.) 

Year Depreciation Expense 

2021 

2022

Answer 1

Ans:

Depreciation under SLM method:

Depreciation expense = (C-S) / L

C = Cost of the asset = $ 17,000

S = Salvage value = $ 2,000

L = Life of the asset = 8

Substitute all the above data in the formula.

(a) Depreciation expense = (C-S) / L

Annual Depreciation expense = ( $ 17,000 - $ 2,000) / 8

= $ 15,000 / 8

= $ 1,875 for 12 months

Depreciation for one month = $ 1,875 / 12

= $ 156.25

Number of months in 2021 for which asset is used ( May to December) = 8 months

(b) Depreciation for 2021 = Depreciation for one month * 8 months

= $ 156.25 * 8

= $ 1,250

Depreciation for 2022 (12 months) = Depreciation for 12 months= $ 1,875.