Asked by Priya Puppala on Jun 14, 2024
Verified
A machine,acquired for a cash cost of $15,000,is being depreciated on a straight-line basis of $2,700 per year.The residual value was estimated to be 10% of cost.The estimated useful life is
A) 3 years.
B) 4 years.
C) 5 years.
D) 6 years.
Straight-Line Basis
An approach to determine depreciation or amortization by equally distributing an asset's cost throughout its usable life.
Residual Value
The estimated value of an asset at the end of its useful life, often considered in depreciation calculations.
Estimated Useful Life
The expected service life of an asset to the present owner
- Gain insight into the essential principles and the calculation methodology associated with straight-line depreciation.
- Develop a thorough grasp of the concepts of book value, residual value, and the technique for estimating annual depreciation charges.
Verified Answer
NS
Nicholas ShammaJun 19, 2024
Final Answer :
C
Explanation :
The formula for straight-line depreciation is:
Depreciation Expense = (Cost - Residual Value) / Useful Life
We know that:
- Cost = $15,000
- Depreciation Expense = $2,700
- Residual Value = 10% of cost = 0.1 x $15,000 = $1,500
Substitute these values into the formula and solve for Useful Life:
$2,700 = ($15,000 - $1,500) / Useful Life
$2,700 = $13,500 / Useful Life
Useful Life = $13,500 / $2,700
Useful Life = 5 years
Therefore, the estimated useful life is 5 years, which is choice C.
Depreciation Expense = (Cost - Residual Value) / Useful Life
We know that:
- Cost = $15,000
- Depreciation Expense = $2,700
- Residual Value = 10% of cost = 0.1 x $15,000 = $1,500
Substitute these values into the formula and solve for Useful Life:
$2,700 = ($15,000 - $1,500) / Useful Life
$2,700 = $13,500 / Useful Life
Useful Life = $13,500 / $2,700
Useful Life = 5 years
Therefore, the estimated useful life is 5 years, which is choice C.
Learning Objectives
- Gain insight into the essential principles and the calculation methodology associated with straight-line depreciation.
- Develop a thorough grasp of the concepts of book value, residual value, and the technique for estimating annual depreciation charges.