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Wildhorse Company purchases equipment on January 1, Year 1, at a cost of $261,000. The asset is expected to have a service life of 6 years and a salvage value of $20,000. Correct answer icon Your answer is correct. Compute the amount of depreciation for each of Years 1 and 2 using the straight-line depreciation method.

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Answer:

Year 1= $40,166.67

Year 2= $40,166.67

Explanation:

Giving the following information:

Wildhorse Company purchases equipment on January 1, Year 1, for $261,000.

The service life of 6 years.

Salvage value of $20,000.

The straight-line depreciation method is the easiest way to calculate the depreciation expense. We need to use the following formula:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (261,000 - 20,000)/6= 40,166.67

Year 1= 40,166.67

Year 2= 40,166.67

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