Question

On January 1, 2016, Woodstock, Inc. purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000.How much is the annual depreciation expense assuming use of the straight-line depreciation method?A. $6,100.B. $6,000.C. $5,950.D. $5,750.

Answer 1

B. $6,000

Step-by-step explanation:

The computation of the annual depreciation expense under the straight-line method is shown below:

= (Original cost - residual value) ÷ (useful life)

= ($41,000 - $5,000) ÷ (6 years)

= ($36,000) ÷ (6 years)

= $6,000

The original cost is computed below:

= Purchase value + transportation and installation cost

= $40,000 + $1,000

= $41,000