If a company uses the straight-line method to depreciate factory equipment, which of the following best describes how monthly depreciation expense is calculated?

• A. Divide the equipment's depreciable cost by its useful life in months.
• B. Multiply the equipment's book value by a fixed percentage each month.
• C. Subtract accumulated depreciation from the equipment's cost each month.
• D. Record the entire cost of the equipment as an expense in the month of purchase.

Answer: (A)

Verified step by step guidance

1. Understand the straight-line depreciation method: This method allocates the cost of an asset evenly over its useful life. It assumes the asset's value decreases at a constant rate each period.
2. Identify the formula for straight-line depreciation: The monthly depreciation expense is calculated as \( \text{Depreciation Expense} = \frac{\text{Depreciable Cost}}{\text{Useful Life in Months}} \).
3. Determine the depreciable cost: Depreciable cost is the difference between the asset's purchase price and its estimated salvage value (if any).
4. Divide the depreciable cost by the useful life in months: This step ensures the depreciation expense is spread evenly across the asset's useful life.
5. Avoid common misconceptions: Do not multiply the book value by a fixed percentage, subtract accumulated depreciation from the cost, or record the entire cost as an expense in the month of purchase. These approaches do not align with the straight-line method.