Alex Company purchased a lathe on January 1, 2022, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Alex uses straight-line depreciation. At the beginning of 2024, Alex estimated the lathe to have a remaining life of four years with no residual value. For the year ended December 31, 2024, Alex would report depreciation expense of: a. $7,500 b. $7,050 c. $7,000 d. $6,750
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.
Alex Company purchased a lathe on January 1, 2022, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Alex uses straight-line
a. $7,500
b. $7,050
c. $7,000
d. $6,750
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