A Florida general contractor purchases equipment for $45,000 with a useful life of 5 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
Correct Answer
C) $9,000
Using straight-line depreciation: $45,000 ÷ 5 years = $9,000 per year. This method spreads the cost evenly over the asset's useful life.
Why This Is the Correct Answer
Option B is correct because straight-line depreciation divides the total cost of the asset by its useful life in years. With equipment costing $45,000 and a 5-year useful life, the calculation is $45,000 ÷ 5 = $9,000 per year. Since there is no salvage value, the entire purchase price is depreciated evenly over the asset's life.
Why the Other Options Are Wrong
Option A: $15,000
This answer ($15,000) would result from dividing $45,000 by 3 years instead of 5 years, which ignores the stated useful life of the equipment.
Option B: $7,500
This answer ($7,500) would result from incorrectly dividing $45,000 by 6 years instead of 5 years, or from some other mathematical error in the depreciation calculation.
Option D: $11,250
This answer ($11,250) appears to be calculated incorrectly, possibly by dividing $45,000 by 4 years instead of 5 years, which doesn't match the given useful life.
Memory Technique
Think 'Straight Line = Straight Division' - just divide the cost by the years, adjusting for any salvage value.
Reference Hint
Look up depreciation methods in the accounting or financial management chapter of your contractor reference manual, typically found under 'Asset Management' or 'Business Operations'.
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