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5 September, 17:30

On January 1, a machine with a useful life of five years and a residual value of $5,000 was purchased for $25,000. What is the depreciation expense for year 2 under straight-line depreciation?

a. $5,000

b. $15,000

c. $4,000

d. $12,000

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  1. 5 September, 17:40
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    c. $4,000

    Explanation:

    Depreciation expense is the appropriate portion of a company's fixed asset's cost that is being used up during accounting period. Under straight-line method, depreciation expense is calculated by formula:

    Straight-Line Depreciation Expense = (Cost - Residual Value) / Useful Life of the Asset

    For year 2, depreciation expense = ($25,000-$5,000) / 5 = $4,000

    Noted:

    Depreciation Expense is different from Accumulated depreciation. Accumulated depreciation is the total amount of depreciation expense for an fixed asset that is recorded on the balance sheet. In this situation, the Accumulated depreciation after 2 years is:

    Depreciation expense in year 1 + Depreciation expense in year 2 = $8,000
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