Refer to the information above. Assume that in its financial statements, Victor uses straight-line depreciation and rounds depreciation for fractional years to the nearest whole month. Depreciation recognized on this equipment in 2009 and 2010 will be:
A) $23,333 in 2009 and $35,000 in 2010.
B) $40,000 in 2009 and $30,000 in 2010.
C) $20,000 in 2009 and $35,000 in 2010.
D) $26,250 in 2009 and $35,000 in 2010.

Question

Quizplus · Accepted Answer

The cost of the equipment is $250,000 and it has a useful life of 6 years. Therefore, the annual depreciation expense is $250,000 / 6 = $41,667.

For 2009, the equipment was purchased on June 30th, which means it was used for 6/12 = 0.5 of the year. Therefore, the depreciation recognized in 2009 is 0.5 x $41,667 = $20,833, which rounded to the nearest whole month is $26,250.

For 2010, the depreciation expense is simply $41,667.

Therefore, the total depreciation recognized for 2009 and 2010 is $26,250 + $41,667 = $67,917, which is closest to choice D.

Refer to the Information Above