Holland Company purchased manufacturing equipment for $10,920. It has an estimated useful life of seven years and no residual value. The company should record depreciation expense of $80 per month. (Assume that the company uses the straight-line method.)

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Melina

Business

31 July, 17:59

Holland Company purchased manufacturing equipment for $10,920. It has an estimated useful life of seven years and no residual value. The company should record depreciation expense of $80 per month. (Assume that the company uses the straight-line method.)

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Odin · Answer 1

False. $130 is the amount that should be recognized.

Explanation:

Depreciation is the systematic allocation of cost to to an asset. It is given as

Depreciation = (cost - salvage value) / estimated useful life

Annual depreciation = 10920/7

= $1560

Monthly depreciation = $1560/12 = $130

Hence should the company record depreciation expense of $80 per month, depreciation will be understated.