Question

Cardinal Industries purchased a generator that cost $11,000. It has an estimated life of five years and a residual value of $1,000. It is estimated to be good for 5,000 hours. If depreciation is computed for the first full year using the straight-line method of depreciation, which information is needed for the calculation?
a. $11,000 cost and five-year life
b. $11,000 cost, 5,000-hour life, and $1,000 salvage value
c. $11,000 cost, 5,000-hour life, five-year life, and $1,000 salvage value
d. $11,000 cost, five-year life, and $1,000 salvage value

Answer 1

Answer:

Correct answer is letter D, $11,000 cost, five-year life and $1,000 salvage value

Explanation:

To compute depreciation expense of an asset using straight-line method of depreciation, the information we needed is 3,

1. cost of an asset

2. life of an asset (in year)

3. residual value (if available)

* residual value of an asset is to be determined by the company, some asset don't have scrap value assigned.

FORMULA

The difference between the cost of an asset and the expected residual value over the number of years it is expected to be useful.

(cost of an asset - residual value ) / life of an asset