A company purchased a delivery van for $31,900 with a salvage value of $3,700 on September 1, Year 1. It has an estimated useful life of 6 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?

The answer is $1,566.67

Explanation:

The formula for Straight line depreciation is:

Cost of an asset - [residual (salvage) value] : number of useful of the asset.

Cost = $31,900

Salvage value = $3,700

Useful number of years = 6 years

= ($31,900 - $3,700) : 6

$4,700.

The depreciation for a year is $4,700.

But September 1 to December 31st is 4 months.

Therefore, the company should recognize

$1,566.67[ ($4,700 : 12months) x 4months] as depreciation expense on December 31, Year 1