Question

A company purchased new furniture at a cost of $31,000 on September 30. The furniture is estimated to have a useful life of 5 years and a salvage value of $3,700. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the furniture for the first year ended December 31

Answer 1

Answer: The depreciation expense that will be recorded for the furniture for the year ended, December 31 is $1,365.

Explanation: The formula for straight-line depreciation method is given below:

(Historical cost minus salvage value) / No of years

• Historical cost is the original purchase price
• Salvage value is the disposable value of the asset

If you put in the information in the question into the formula, you have:

($31,000 - $3,700) / 5 years = $5,460 yearly depreciation

We need to get the depreciation expense as at December 31. This means the yearly depreciation above has to be pro rated for 3 months, as follows:

$5,460 x 3/12 = $1,365.

Entries to be recorded would be Debit Depreciation expense $1,365; Credit Accumulated depreciation $1,365. In most cases, organizations record depreciation expense on a monthly basis.