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?
Correct Answer
B) $5,000
Straight-line depreciation equals (Cost - Salvage Value) ÷ Useful Life. $45,000 ÷ 9 years = $5,000 per year.
Why This Is the Correct Answer
Option B is correct because straight-line depreciation distributes the cost of an asset evenly over its useful life. The formula is (Cost - Salvage Value) ÷ Useful Life. With equipment costing $45,000, no salvage value, and a 9-year useful life, the calculation is $45,000 ÷ 9 = $5,000 per year. This method provides consistent annual depreciation expenses for financial planning and tax purposes.
Why the Other Options Are Wrong
Option A: $4,500
Option A ($4,500) is incorrect because it appears to be based on a 10-year useful life calculation ($45,000 ÷ 10 = $4,500), but the problem clearly states the equipment has a 9-year useful life.
Option D: $6,000
Option D ($6,000) is incorrect because it appears to be based on a calculation using 7.5 years ($45,000 ÷ 7.5 = $6,000) rather than the stated 9-year useful life.
Memory Technique
Remember 'SLiDE': Straight-Line = Divide Evenly. The cost slides down evenly over the useful life, like dividing a pizza into equal slices.
Reference Hint
Look up 'Depreciation Methods' or 'Straight-Line Depreciation' in the accounting or business management section of your contractor reference manual.
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