On March 1, 2016, Ginger Company purchased a machine for $175,000. It had a $25,000 salvage value and a 10-year useful life.
Assuming that Ginger uses the straight-line method to depreciate its assets, how much depreciation expense will Ginger recognize on December 31, 2016 and December 31, 2017?
a. Year 2016 - $11,250; Year 2017- $3,750
b. Year 2016 - $11,250, Year 2017 - $15,000
c. Year 2016 - $12,500, Year 2017 - $15,000
d. Year 2016 - $15,000, Year 2017- $15,000
e. Year 2016- $12,500, Year 2017- $2,500
Cost of machine = $175,000
Salvage value = $25,000
Life = 10 Years
Depreciation = (Initial cost - Salvage value) / Useful life
= ($175,000 - $25,000) / 10
= $15,000
Depreciation for year 2016 :
In 2016 company purchased a machine on March 1, 2016 which means we charge depreciation for 10 months only.
1 month depreciation = $15,000 / 12 = $1,250
Depreciation of 10 months ($1,250 * 10) = $12,500
Depreciation for 2017 is $15,000.
Therefore,
Option c. Year 2016 - $12,500, Year 2017 - $15,000 is the correct answer.
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