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On April 30,2017,Tilton Products purchased machinery for $88,000.The useful life of this machinery is estimated at 8 years,with an $8,000 residual value.
-Assume that in its financial statements,Tilton Products uses straight-line depreciation and rounds depreciation for fractional years to the nearest month.Depreciation expense recognized on this machinery in 2017 and 2018 will be:
A)$2,333 in 2017 and $7,000 in 2018.
B)$5,833 in 2017 and $10,000 in 2018.
C)$6,667 in 2017 and $10,000 in 2018.
D)$10,000 in 2017 and $10,000 in 2018.

Question

Quizplus · Accepted Answer

To calculate depreciation expense per year, we first need to determine the depreciable cost, which is the cost of the asset minus its residual value.
Depreciable cost = $88,000 - $8,000 = $80,000

Next, we determine the annual depreciation expense by dividing the depreciable cost by the useful life of the asset in years.
Annual depreciation expense = Depreciable cost / Useful life
Annual depreciation expense = $80,000 / 8 = $10,000 per year

Since the machinery was purchased on April 30, 2017, we need to calculate the depreciation expense for the partial year. There are 8 months left in 2017, so the partial year depreciation expense would be:
Partial year depreciation expense = Annual depreciation expense x (number of months remaining / 12)
Partial year depreciation expense = $10,000 x (8 / 12) = $6,667

Therefore, the answer is C, with $6,667 in 2017 and $10,000 in 2018.

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