A company purchased equipment for $10,000. The equipment has a useful life of 5 years and a salvage value of $1,000. Using the straight-line depreciation method, what is the annual depreciation expense?
Question
A company purchased equipment for 1,000. Using the straight-line depreciation method, what is the annual depreciation expense?
Solution
To calculate the annual depreciation expense using the straight-line method, you need to follow these steps:
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Determine the cost of the asset. In this case, the cost of the equipment is $10,000.
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Determine the salvage value of the asset. The salvage value is the estimated value of the asset at the end of its useful life. In this case, the salvage value is $1,000.
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Determine the useful life of the asset. The useful life is the estimated number of years the asset can be used before it is fully depreciated. In this case, the useful life is 5 years.
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Subtract the salvage value from the cost of the asset. This gives you the total depreciation over the asset's useful life. In this case, 1,000 = $9,000.
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Divide the total depreciation by the useful life of the asset. This gives you the annual depreciation expense. In this case, 1,800.
So, the annual depreciation expense for the equipment is $1,800.
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