Question

4. Dan, a hotel owner, purchases $10,000 worth of pillow top mattresses as part of an effort to upgrade his property's guest rooms. Dan knows the IRS has determined the useful life of this type of purchase to be five tax years, and at the end of that time period, Dan knows the salvage value of the new bedding will be zero. Dan wants to know the amount he will identify as a depreciation expense, as well as the impact on his balance sheet of this mattress purchase if he uses the straight-line depreciation method. To help him, complete the depreciation schedule Dan has started. Straight-Line Depreciation Year Expense Amount Balance Sheet Value $0.00

Answer 1

4.

Depreciation under Straight Line method

      = (Cost of the asset - Salvage Value) / Useful life of the asset

Here,

Cost of the asset is $10,000

Salvage Value is Nil

Useful life of the asset is 5 years

Depreciation = (Cost of the asset - Salvage Value) / Useful life of the asset

                     = ($10,000 - 0 ) / 5

                     = $10,000 / 5

                    = $2,000

Here, Balance sheet value is value after completion of a year.

Straight-Line Depreciation
Year	Expense Amount	Balance sheet Value
1	$2,000	$8,000
2	$2,000	$6,000
3	$2,000	$4,000
4	$2,000	$2,000
5	$2,000	$0