Question

Lockard Company purchased machinery on January 1, 2017, for \(80,000. The machinery is estimated to have a salvage value of \)8,000 after a useful life of 8 years. (a) Compute 2017 depreciation expense using the straight-line method. (b) Compute 2017 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2017.

Short answer

Answer

1. Depreciation expense = $9,000.
2. Depreciation expense = $3,000.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Straight-Line Depreciation

Straight-line depreciation is the simplest way to calculate depreciation expense. There is uniform depreciation from year to year and it recognizes less depreciationat the beginning compared to other depreciation methods.

(a) Computing depreciation for 2017

$\begin{array}{c}\text{Depreciation\hspace{0.17em}expense}=\frac{\text{Cost\hspace{0.17em}of\hspace{0.17em}asset}-\text{Salvage\hspace{0.17em}value}}{\text{Useful\hspace{0.17em}life}}\\ =\frac{\$80,000-\$8,000}{8}\\ =\$9,000\end{array}$

(b) Computing depreciation for 2017

$\begin{array}{c}\text{Depreciation\hspace{0.17em}expense}=\frac{\text{Cost\hspace{0.17em}of\hspace{0.17em}asset}-\text{Salvage\hspace{0.17em}value}}{\text{Useful\hspace{0.17em}life}}\times \frac{\text{Number\hspace{0.17em}of\hspace{0.17em}month}}{\text{Month\hspace{0.17em}in\hspace{0.17em}a\hspace{0.17em}year}}\\ =\frac{\$80,000-\$8,000}{8}\times \frac{4}{12}\\ =\$3,000\end{array}$