Peavey Enterprises purchased a depreciable asset for $27,000 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 $3,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?Multiple Choice$16,500$5,000$24,000$20,000$6,000
Question
Peavey Enterprises purchased a depreciable asset for 3,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?Multiple Choice5,00020,000$6,000
Solution
To calculate the accumulated depreciation, we first need to calculate the annual depreciation expense.
Step 1: Calculate the depreciable base. Depreciable base = Cost of asset - Salvage value Depreciable base = 3,000 = $24,000
Step 2: Calculate the annual depreciation expense. Annual depreciation expense = Depreciable base / Useful life Annual depreciation expense = 6,000
Step 3: Calculate the accumulated depreciation on December 31, Year 3. Since the asset was purchased on April 1, Year 1, by December 31, Year 3, it would have been in use for 3 years. Therefore, the accumulated depreciation would be the annual depreciation expense multiplied by the number of years the asset has been in use.
Accumulated depreciation = Annual depreciation expense * Number of years Accumulated depreciation = 18,000
However, since the asset was purchased on April 1, Year 1, it was not in use for the full first year. Therefore, for the first year, we should only count 9 months of depreciation (April to December).
First year depreciation = (Annual depreciation expense / 12) * 9 First year depreciation = (4,500
Therefore, the correct accumulated depreciation on December 31, Year 3, would be the sum of the first year's depreciation and the full depreciation for the next two years.
Accumulated depreciation = First year depreciation + (Annual depreciation expense * 2) Accumulated depreciation = 6,000 * 2) = $16,500
So, the correct answer is $16,500.
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