Question

Windsor Hospital purchases $90,000 in surgical equipment on October 1, Year 1. The useful life is estimated to be 5 years, and the residual value is estimated to be $10,000. What will be the depreciation expense reported for this equipment in Year 1 if the hospital uses the straight-line method?

Answer 1

Answer:

The depreciation expense for year 1 is $16,000

Explanation:

Depreciation: The depreciation was occurred due to tear and wear, obsolesce, time period, etc

Under the straight-line method, the depreciation should be charged with the same amount over the useful life.

The calculation is shown below:

= $\dfrac{(original\ cost - residual\ value)}{(useful \ life)}$

= $\dfrac{(\ 90,000 - \ 10,000)}{(5 \ years)}$

= $16,000

The depreciation should be charged for $16,000 in year 1. Moreover, it is shown in the income statement in the debit side and in the cash flow statement also.