A contractor purchases computer equipment for $18,000 with a 5-year useful life and no salvage value. Using straight-line depreciation, what is the monthly depreciation expense?
Correct Answer
A) $300
Annual depreciation = $18,000 ÷ 5 years = $3,600 per year. Monthly depreciation = $3,600 ÷ 12 months = $300 per month. With no salvage value, the full cost is depreciated over the useful life.
Why This Is the Correct Answer
Option A is correct because straight-line depreciation spreads the cost evenly over the asset's useful life. With no salvage value, the entire $18,000 cost is depreciated over 5 years, resulting in $3,600 annual depreciation. Dividing this by 12 months gives exactly $300 per month.
Why the Other Options Are Wrong
Option B: $360
This would result from incorrectly calculating $4,320 annual depreciation ($360 × 12), which doesn't match the proper straight-line calculation of $18,000 ÷ 5 years.
Option C: $400
This would result from incorrectly calculating $4,800 annual depreciation ($400 × 12), which significantly exceeds the proper annual depreciation of $3,600.
Option D: $450
This would result from incorrectly calculating $5,400 annual depreciation ($450 × 12), which would depreciate the asset in less than 4 years instead of the required 5-year useful life.
Memory Technique
Remember 'SLY' for Straight-Line: Simply divide cost by Years, then by 12 for monthly. No salvage value means you depreciate the full cost.
Reference Hint
Business and Finance chapter, specifically the section on depreciation methods and asset accounting
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