El Tapitio purchased restaurant furniture on September 1, 2024, for $49,000. Residual value at the end of an estimated 10-year service life is expected to be $6,400. Calculate depreciation expense for 2024 and 2025, using the straight-line method and assuming a December 31 year-end. (Do not round intermediate calculations.)
Question
El Tapitio purchased restaurant furniture on September 1, 2024, for 6,400. Calculate depreciation expense for 2024 and 2025, using the straight-line method and assuming a December 31 year-end. (Do not round intermediate calculations.)
Solution
To calculate the annual depreciation expense using the straight-line method, you first need to determine the depreciable base. This is the initial cost of the asset minus the residual value.
Step 1: Calculate the depreciable base Depreciable base = Initial cost - Residual value Depreciable base = 6,400 = $42,600
Step 2: Calculate the annual depreciation expense Annual depreciation expense = Depreciable base / Useful life Annual depreciation expense = 4,260 per year
However, the furniture was purchased on September 1, 2024, so the depreciation for 2024 will only be for 4 months (September through December).
Step 3: Calculate the depreciation expense for 2024 Depreciation expense for 2024 = (Annual depreciation expense / 12 months) * 4 months Depreciation expense for 2024 = (1,420
The depreciation expense for 2025 will be for the full year, so it will be the annual depreciation expense calculated in Step 2.
Step 4: Calculate the depreciation expense for 2025 Depreciation expense for 2025 = Annual depreciation expense Depreciation expense for 2025 = $4,260
So, the depreciation expense for 2024 is 4,260.
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