Question
Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method
Peavey Enterprises purchased a depreciable asset for $22,000 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 $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:
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$5,000
Explanation:
The depreciable base of the asset is the cost of the asset minus its salvage value. In this case, it is $22,000 - $2,000 = $20,000.
Since the asset is depreciated over four years using the straight-line method, the annual depreciation expense is the depreciable base divided by the useful life. So, $20,000 / 4 = $5,000.
Therefore, Peavey Enterprises should recognize a depreciation expense of $5,000 in Year 2.
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