On May 10,2010 the Horan Company purchased equipment for $25,000. The equipment

Question

On May 10,2010 the Horan Company purchased equipment for $25,000. The equipment has an estimated service life of five years and zero residual value. Assume that straight-line depreciation is used.

Compute depreciation for 2010 for each of the following alternatives

1. the company computes depreciation to the nearest day (use 12 months with 30 days each)

2. The company computes depreciation to the nearest month

3. the compnay computes depreciation to the nearest whole year

4. The company records one-hlaf year's depreciation on all assets purchased during the year.

Explanation / Answer

1) Nearest day alternative depreciation would be available from May 10 2010= (21+7*30)*25000/(5*12*30) = $3208.33

2) Nerarest month alternative depreciation will be available from May 2010 =

(8*25000)/(12*5) = $3333.33

3) Nearest whole year alternative depreciation will not be available for year 2010 and will be available from 2011.

4) Half year dep alternative = 25000* 0.5/5 = $2500

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