9. Gingerbread Corp purchased $100,000 in display tables on January 1, 2020. The display tables had a built in cooling feature to preserve the gingerbread villages on display. The company uses the straight line method of depreciation, estimates a salvage value of $20,000, and a useful life of 5 years. What will the company record for depreciation expense on December 31, 2020? a.$10,000 b.$20,000 c.$6,000 d.$16,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
9. Gingerbread Corp purchased $100,000 in display tables on January 1, 2020. The display tables had a built in cooling feature to preserve the gingerbread villages on display. The company uses the
a.$10,000
b.$20,000
c.$6,000
d.$16,000
Each firm acquires some assets to run its business. But the value of the assets decreases every year by some amount, that’s amount is said to be depreciation of asset.
A firm can use different methods to calculate its depreciation expenses, but most common method used is Straight Line Method (SLM).
Initial cost (Purchased price of display tables)= $100,000
Salvage value = $20,000
Useful life = 5 years
Depreciation expense = (Initial cost – salvage value )/ Useful life
= (100,000 – 20,000) / 5
= 80,000 / 5
= $16,000
The depreciation charged will be $16,000 per annum.
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