Question

Question 10 On October 1, 2022. Manning Company places a new asset into service. The cost of the asset is $120000 with an estimated 5-year life and $30000 salvage value at the end of its useful life. What is the depreciation expense for 2022 if Manning Company uses the straight-line method of depreciation? Please show your work.

Answer 1

Question 10:

Depreciation expense for 2022 = $4500

Solution -

Depreciation expense per year under straight line method = (cost - salvage value) /useful life.

= ($120000 - $30000)/5

= $90000/5

= $18000

This is expense for one complete year, but the asset is purchased on October 1st. That means, for the year ending December 31, 2022 the assets was put to use for only 3 months (Oct 1 to Dec 31).

So,

depreciation expense for year 2022 = ($18000/12)×3

= $1500 per month × 3 months

= $4500

Note : as there is no specific instruction in the question regarding ending of the financial year, it is taken as the year ending on December 31.