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A company purchased a computer for \$1,500. The computer has an estimated useful life of 3 years and no residual value. Using the straight-line method, what is the annual depreciation expense?
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8. Long Lived Assets
Depreciation: Straight Line
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Straight-line depreciation expense for a depreciable asset is calculated by taking which of the following amounts?
A
The asset’s cost multiplied by the straight-line rate , ignoring residual value
B
The asset’s residual (salvage) value divided by its useful life, then subtracted from cost each year
C
The asset’s cost minus its residual (salvage) value, divided by its useful life
D
The asset’s cost plus its residual (salvage) value, divided by its useful life
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Understand that straight-line depreciation spreads the cost of the asset evenly over its useful life.
Identify the key components needed: the asset's cost, its residual (salvage) value, and its useful life.
Calculate the depreciable amount by subtracting the residual value from the asset's cost: \(\text{Depreciable Amount} = \text{Cost} - \text{Residual Value}\).
Determine the annual depreciation expense by dividing the depreciable amount by the useful life: \(\text{Depreciation Expense} = \frac{\text{Depreciable Amount}}{\text{Useful Life}}\).
Recognize that this method ensures the asset's value is reduced evenly each year until it reaches the residual value at the end of its useful life.
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