A contractor purchases equipment for $120,000 with an estimated useful life of 8 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
Correct Answer
B) $15,000
Straight-line depreciation divides the cost evenly over the useful life. $120,000 ÷ 8 years = $15,000 per year. Since there's no salvage value, the full cost is depreciated.
Why This Is the Correct Answer
Option B is correct because straight-line depreciation calculates annual depreciation by dividing the total depreciable cost by the useful life in years. With equipment costing $120,000, no salvage value, and an 8-year useful life, the calculation is straightforward: $120,000 ÷ 8 = $15,000 per year. This method spreads the cost evenly across all years of the asset's useful life.
Why the Other Options Are Wrong
Option A: $12,000
This answer of $12,000 would result from incorrectly dividing $120,000 by 10 years instead of the given 8-year useful life, showing a calculation error.
Option C: $18,000
This answer of $18,000 appears to come from dividing $120,000 by approximately 6.67 years, which doesn't match the given 8-year useful life.
Option D: $20,000
This answer of $20,000 would result from dividing $120,000 by 6 years instead of the correct 8-year useful life specified in the problem.
Memory Technique
Remember 'SLD' - Straight Line = Divide. Simply divide the net cost (cost minus salvage) by the years of useful life for equal annual amounts.
Reference Hint
Look up 'Depreciation Methods' or 'Straight-Line Depreciation' in the accounting or business management section of your reference materials.
More Business & Finance Questions
A contractor's license expires on March 31st. If they submit a renewal application on April 15th, what additional requirement must be met under Florida regulations?
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
In Florida, what is the minimum workers' compensation insurance coverage required for construction companies with employees?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?