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A purchase of equipment for $18,000 also involved freight charges of $500 and installation costs of $2,500
A purchase of equipment for $18,000 also involved freight charges of $500 and installation costs of $2,500. The estimated salvage value and useful life are $2,000 and 4 years, respectively. Under the straight-line method, annual depreciation expense will be:
a. $4,500.
b. $4,125.
c. $4,625.
d. $4,750.
Expert Solution
Answer:
d .
Step-by-Step explanation
Depreciation is a decline in the value of the asset over time due to wear and tear .
It ther words it is the allocating the cost of the asset over the useful lfe of the asset.
Under straight line method same amount of depreciation is charged year after year i.e. Depreciation is charged on the original cost of the asset.
Depreciation =[ ( Purchase price + Freight + Installation Charges ) - Salvage Value ] / Life of the asset
Depreciation =[ ( 18500 + 500 + 2500 ) - 2000] / 4
Depreciation = $4750
Hence Option D is the correct answer.
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