A contractor purchases a truck for $65,000 and expects to use it for 6 years with a trade-in value of $11,000. Using straight-line depreciation, what is the depreciation expense in year 4?
Correct Answer
B) $9,000
Annual depreciation = ($65,000 - $11,000) ÷ 6 = $9,000. With straight-line depreciation, the annual expense is the same each year, so year 4 depreciation is $9,000.
Why This Is the Correct Answer
Straight-line depreciation calculates a constant annual depreciation expense by dividing the depreciable amount by the useful life. The depreciable amount is the original cost minus the salvage value ($65,000 - $11,000 = $54,000). This amount is then divided by the 6-year useful life to get $9,000 per year. Since straight-line depreciation produces the same expense each year, year 4 depreciation is $9,000.
Why the Other Options Are Wrong
Option C: $10,833
This represents the total accumulated depreciation after 3 years ($9,000 × 3 = $27,000), not the depreciation expense for year 4 alone.
Option D: $27,000
This appears to be calculating depreciation for 3 years ($9,000 × 3 = $27,000) and then dividing by some factor, which is not how straight-line depreciation works for a single year.
Memory Technique
Remember 'SLD = Same Line Down' - Straight-Line Depreciation creates the Same amount each year, drawn as a Line going Down at a constant rate.
Reference Hint
Look up 'Depreciation Methods' or 'Straight-Line Depreciation' in accounting or business management chapters of your reference materials.
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