O O $26,833.33 $28,000.00
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![### Depreciation Expense Calculation Problem
Peavey Enterprises purchased a depreciable asset for $32,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $4,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:
#### Multiple Choice:
- $26,833.33
- $28,000.00
- $7,000.00
- $8,000.00
### Detailed Explanation:
To calculate the annual depreciation expense using the straight-line method, we apply the following formula:
\[ \text{Annual Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life}} \]
Given:
- Cost of Asset = $32,000
- Salvage Value = $4,000
- Useful Life = 4 years
Calculation:
\[ \text{Annual Depreciation Expense} = \frac{\text{\$32,000} - \text{\$4,000}}{\text{4 years}} = \frac{\text{\$28,000}}{\text{4}} = \text{\$7,000} \]
Since the asset was purchased on April 1, Year 1, the depreciation expense for the first year should be prorated for 9 months (April to December):
\[ \text{Depreciation Expense for Year 1} = \frac{\text{\$7,000} \times \text{9}}{\text{12}} = \text{\$5,250} \]
Therefore, the depreciation for the full year in Year 2 would be $7,000.
Correct Answer:
- $7,000.00](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb045d792-9702-4f0f-a214-b11e7d1d3c32%2Fdc7139b9-df4d-46ea-86fd-bff42505ad9d%2Ffivv1cp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Depreciation Expense Calculation Problem
Peavey Enterprises purchased a depreciable asset for $32,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $4,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:
#### Multiple Choice:
- $26,833.33
- $28,000.00
- $7,000.00
- $8,000.00
### Detailed Explanation:
To calculate the annual depreciation expense using the straight-line method, we apply the following formula:
\[ \text{Annual Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life}} \]
Given:
- Cost of Asset = $32,000
- Salvage Value = $4,000
- Useful Life = 4 years
Calculation:
\[ \text{Annual Depreciation Expense} = \frac{\text{\$32,000} - \text{\$4,000}}{\text{4 years}} = \frac{\text{\$28,000}}{\text{4}} = \text{\$7,000} \]
Since the asset was purchased on April 1, Year 1, the depreciation expense for the first year should be prorated for 9 months (April to December):
\[ \text{Depreciation Expense for Year 1} = \frac{\text{\$7,000} \times \text{9}}{\text{12}} = \text{\$5,250} \]
Therefore, the depreciation for the full year in Year 2 would be $7,000.
Correct Answer:
- $7,000.00
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