A contractor purchases equipment for $45,000 with an expected useful life of 5 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
Correct Answer
D) $9,000
Using straight-line depreciation: ($45,000 - $0) ÷ 5 years = $9,000 per year. This method spreads the cost evenly over the asset's useful life.
Why This Is the Correct Answer
Using the straight-line depreciation formula: (Cost - Salvage Value) ÷ Useful Life = Annual Depreciation. With equipment costing $45,000, no salvage value ($0), and a 5-year useful life, the calculation is ($45,000 - $0) ÷ 5 = $9,000 per year. This method allocates the asset's cost evenly across its useful life for consistent annual expense recognition.
Why the Other Options Are Wrong
Option A: $10,500
$10,500 appears to result from incorrectly dividing $45,000 by approximately 4.3 years instead of 5 years, or possibly adding an unnecessary factor to the basic straight-line calculation.
Option B: $15,000
$15,000 would result from dividing $45,000 by 3 years instead of the correct 5-year useful life, representing a significant error in the denominator of the depreciation formula.
Option C: $7,500
$7,500 appears to result from dividing $45,000 by 6 years instead of 5 years, or possibly from some other mathematical error in applying the straight-line method.
Memory Technique
Remember 'CSUL' - Cost minus Salvage, divided by Useful Life. For straight-line depreciation, it's always this simple division that spreads cost evenly over time.
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