Suppose you just bought an asset with a book value of $250,000 that is depreciated using the straight-line method over the project's life of 6 years. The salvage value at the end of the 6 years will be $400. What will be the depreciation expense in year 3?

Question

BlackTom AI · Accepted Answer

To approach this problem, I’ll break down the depreciation calculation and then evaluate each answer choice.
First, identify the key figures: cost (book value) = 250,000, salvage value = 400, and the project life = 6 years. In straight-line depreciation, annual depreciation = (Cost - Salvage value) / Useful life.
Option 1: 125,200. This number would imply a much larger annual deduction or a misapplication of the formula; specifically, 125,200 is not consistent with (250,000 - 400) / 6 which yields a significantly smaller amount. It seems like it could resemble (250,000 - 400) / 2 or another incorrect division, which is not appropriate for a 6-year life.
Option 2: 124,800. Similar to option 1, this value is far too high for annual depreciation over 6 years given the salvage value; it likely stems from dividing a miscomputed numerator or misinterpreting the salvage adjustment. It does not align with the standard straight-line method.
Option 3: 41,600. This equals (250,000 - 400) / 6, since 250,000 - 400 = 249,600, and 249,600 / 6 = 41,600. This matches the straight-line depreciation formula exactly and represents the correct annual expense.
Option 4: 208,400. This is much larger than the total depreciable amount (Cost minus salvage) and cannot be correct as an annual depreciation figure; it exceeds the allowed depreciation over the asset’s life and would imply a negative book value very quickly if mistaken.
In summary, the correct depreciation per year under straight-line depreciation with the given inputs is (Cost − Salvage) / Useful life = (250,000 − 400) / 6 = 249,600 / 6 = 41,600. The other options arise from miscalculations or misapplications of the formula, such as treating the entire book value as depreciation, misdividing the amount, or not accounting for salvage value.

MSB-250-300-002 Proctored Final Exam

Suppose you just bought an asset with a book value of $250,000 that is depreciated using the straight-line method over the project's life of 6 years. The salvage value at the end of the 6 years will be $400. What will be the depreciation expense in year 3?

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