Kansas Enterprises purchased equipment for $60,000 on January 1, 2012. The equipment is expected to have a five-year life, with a residual value of $5,000 at th

Question

Kansas Enterprises purchased equipment for $60,000 on January 1, 2012. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the straight-line method, depreciation expense for 2012 would be:

 

A. $12,000.

B. $11,000.

C. $60,000.

D. None of the other answers are correct.

Answer 1

If the residual value after 5 years is $5,000, that means the total depreciation is going to be $55,000.  Depreciating by the straight-line method means that the annual depreciation expense will be equal each year, so depreciating $55,000 over 5 years means that the depreciation expense for one year would be $11,000.