Question

Lockard Company purchased machinery on January 1, 2020, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. A) Compute 2020 depreciation expense using the straight-line method. B) Compute 2020 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2020.

Answer 1

Answer:

a) $9,000

b) $3,000

Explanation:

The calculation of the depreciation expense for each of the following cases  

a)

As we know that  

= (Purchase cost of machinery - estimated salvage value) ÷ (useful life)

= ($80,000 - $8,000) ÷ (8 years)

= ($72,000) ÷ (8 years)  

= $9,000

b)  Since the asset purchased as on Sep 1, 2020 so the depreciation expenses would be charged for four months i.e. From September to December.

Also at the same time we assume the books are closed as on Dec 31,2020

Therefore, the depreciation expense is

= $9,000 × 4 months ÷ 12 months

= $3,000