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FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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**Depreciation Calculation Example**

China Dragon purchased new restaurant equipment on September 1, 2021, for $9,000. The residual value at the end of an estimated five-year service life is expected to be $1,200.

Calculate the depreciation expense using the straight-line method for 2021 and 2022, assuming a December 31 year-end. *(Do not round your intermediate calculations. Round your final answers to the nearest whole dollar.)*

**Depreciation Schedule**

| Year | Depreciation Expense |
|------|-----------------------|
| 2021 | |
| 2022 | |

**Explanation:**

To calculate depreciation expense using the straight-line method, we subtract the residual value from the cost of the asset and then divide by its useful life. Since the equipment was purchased during the year, partial depreciation for 2021 applies.

1. **Cost of the Equipment**: $9,000
2. **Residual Value**: $1,200
3. **Useful Life**: 5 years

**Annual Depreciation Calculation:**

\[ \text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} \]

\[ \text{Annual Depreciation} = \frac{9,000 - 1,200}{5} = 1,560 \] (per year)

**Partial Year Calculation for 2021:**

Since the equipment was purchased on September 1, 2021, depreciation for 2021 would be calculated for four months (September to December).

\[ \text{2021 Depreciation} = \frac{1,560}{12} \times 4 = 520 \]

**Full Year Calculation for 2022:**

As the full year is considered, the depreciation expense would be $1,560.

| Year | Depreciation Expense |
|------|-----------------------|
| 2021 | 520 |
| 2022 | 1,560 |

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