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On April 2,2017,Victor,Inc.acquired a new piece of filtering equipment.The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years.
-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 2017 and 2018 will be:
A)$23,333 in 2017 and $35,000 in 2018.
B)$40,000 in 2017 and $30,000 in 2018.
C)$20,000 in 2017 and $35,000 in 2018.
D)$26,250 in 2017 and $35,000 in 2018.

Question

Quizplus · Accepted Answer

The depreciable cost of the equipment is the cost minus the residual value, or $160,000 - $20,000 = $140,000. 
The annual depreciation expense is $140,000 / 4 years = $35,000 per year. 
For 2017, the company owned the equipment for 9/12 of the year (April-December), so the depreciation expense for 2017 would be 9/12 x $35,000 = $26,250, rounded to the nearest whole month. 
For 2018, the equipment would be owned for the full year, so the depreciation expense for 2018 would be $35,000.

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