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Straight line depreciation

Monumental Products Corp. had recently purchased a new machinery at a cost of $450,000. Management estimates that the equipment will have a useful life of 15 years and no salvage value at the end of the period.

If the straight-line depreciation method is used for financial reporting, calculate the following:

A) Annual depreciation expense.

B) Accumulated depreciation at the end of years 1 through 5.

C) If this was the company's only fixed asset, what would the Balance Sheet account, Fixed Assets (net) show at the end of years 1 and 5?

Solution Preview

A) Annual depreciation expense.

Under straight line method, the annual depreciation is calculated as (Cost - Salvage Value)/useful life
In this question
Cost = 450,000
Salvage Value = 0
Useful Life = 15 years
Annual Depreciation = 450,000/15 = $30,000
The annual depreciation expense is $30,000

B) Accumulated depreciation at the end of years 1 through 5.

In the straight line method, the depreciation is constant in each year. The ...

Solution Summary

The solution explains how to calculate the straight line depreciation, book value and balance sheet presentation of fixed assets

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