Calculate depreciation for year 2 based on the following information: Historical cost $40,000 Useful life 5 years Salvage value $3,000 Year 1 depreciation $7,400 Multiple Choice

1. $7,000

2. $7,400

3. $8,000

4. $8,600

2. $7,400

Explanation:

Depreciation is calculated by first establishing the depreciable value of an asset. Depreciable cost is Asset cost - Salvage value.

In the case: $40,000 - $3000 = $37,000

Under straight depreciation, depreciation is equal throughout the life of an asset.

For a five year use-life life, rate of depreciation = 1/5 x 100 = 20 percent:

20% of $37,000 = $7,400.00

If 1st depreciation is $7400, second-year depreciation will be $7400