Under the straight-line method of depreciation, what is the average dollar amount of depreciation expense recorded after 1 year for an asset with a cost of \$10,000, a residual value of \$2,000, and a useful life of 4 years?

• A. \$2,000
• B. \$4,000
• C. \$2,500
• D. \$8,000

Answer: (A)

Verified step by step guidance

1. Determine the formula for calculating depreciation expense under the straight-line method: \( \text{Depreciation Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} \).
2. Identify the given values in the problem: \( \text{Cost} = 10,000 \), \( \text{Residual Value} = 2,000 \), and \( \text{Useful Life} = 4 \text{ years} \).
3. Subtract the residual value from the cost to calculate the depreciable amount: \( \text{Depreciable Amount} = \text{Cost} - \text{Residual Value} = 10,000 - 2,000 \).
4. Divide the depreciable amount by the useful life to find the annual depreciation expense: \( \text{Depreciation Expense} = \frac{\text{Depreciable Amount}}{\text{Useful Life}} \).
5. The result of this calculation will give you the average dollar amount of depreciation expense recorded after 1 year.