What is the annual depreciation expense for a 28,000 asset with a 10-year service life using straight-line depreciation (assuming no salvage value)?

What is the annual depreciation expense for a 28,000 asset with a 10-year service life using straight-line depreciation (assuming no salvage value)?

• A. Zero
• B. $2,800
• C. $28,000
• D. $14,000

Answer: (B)

Straight-line depreciation spreads the asset’s cost over its useful life, subtracting any salvage value. Each year’s depreciation is (cost − salvage value) ÷ useful life. With a cost of 28,000, salvage value of 0, and a 10-year life, the annual depreciation is 28,000 ÷ 10 = 2,800. That amount is expensed each year while the asset is in service. Zero would imply no depreciation is recorded, which isn’t correct for an asset in use. The full 28,000 would imply expensing the entire cost in one year, which isn’t how straight-line works. 14,000 would come from assuming a 2-year life, which isn’t given here.

Straight-line depreciation spreads the asset’s cost over its useful life, subtracting any salvage value. Each year’s depreciation is (cost − salvage value) ÷ useful life. With a cost of 28,000, salvage value of 0, and a 10-year life, the annual depreciation is 28,000 ÷ 10 = 2,800. That amount is expensed each year while the asset is in service.

Zero would imply no depreciation is recorded, which isn’t correct for an asset in use. The full 28,000 would imply expensing the entire cost in one year, which isn’t how straight-line works. 14,000 would come from assuming a 2-year life, which isn’t given here.