On October 1, 2015, Ming Wo Ltd.places a new asset into service.The cost of the asset is $16,000 with an estimated 5-year life and $4,000 residual value.If Ming Wo uses straight-line depreciation, the depreciation expense for the year ended January 31, 2016 is
A)$ 600.
B)$ 800.
C)$1,067.
D)$2,400.

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for the year ended January 31, 2016 using straight-line depreciation, we need to determine the depreciable cost first.

Depreciable cost = cost of asset - residual value
Depreciable cost = $16,000 - $4,000
Depreciable cost = $12,000

Next, we need to determine the annual depreciation expense.

Annual depreciation expense = depreciable cost / asset life
Annual depreciation expense = $12,000 / 5
Annual depreciation expense = $2,400

Since the asset was placed into service on October 1, 2015, only 4 months of depreciation will be recorded for the year ended January 31, 2016.

Depreciation expense for the year ended January 31, 2016 = (annual depreciation expense / 12) x number of months in service
Depreciation expense for the year ended January 31, 2016 = ($2,400 / 12) x 4
Depreciation expense for the year ended January 31, 2016 = $800

Therefore, the best answer choice is B, which is $800.