Vanderet's Computer Business owns computer equipment which cost $3,240 and has an expected useful life of three years. No residual value is expected. At the company's yearend, December 31, the equipment's book value is $2,520. In what month was the computer purchased using the straight-line depreciation method?
A) January
B) March
C) May
D) June
E) August

Question

Quizplus · Accepted Answer

Using the straight-line depreciation method, we can determine the annual depreciation expense:
Annual depreciation expense = (Cost - Residual Value) / Useful Life
Annual depreciation expense = ($3,240 - $0) / 3 years = $1,080 per year
To determine the monthly depreciation expense, we divide the annual amount by 12:
Monthly depreciation expense = $1,080 / 12 = $90 per month
To determine the number of months since the purchase of the equipment, we can subtract the book value from the cost and divide by the monthly depreciation expense:
Number of months = (Cost - Book Value) / Monthly depreciation expense
Number of months = ($3,240 - $2,520) / $90 per month = 8 months
Therefore, the computer was purchased in May (8 months prior to December 31).

Vanderet's Computer Business Owns Computer Equipment Which Cost $3,240 and Has