A company purchased a delivery van for $23,000 with a salvage value of $3,000 on September 1, 2008. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, 2008? Select one:a. $1,000. b. $1,333. c. $1,533. d. $4,000. e. $4,600.

B

Explanation:

The value to depreciate is always the total asset value minus the salvage value. In this case, $23,000-$3000=$20,000. The straight line method formula is:

Depreciation = value to depreciate/useful years

Depreciation (year) = $20,000/5 = $4,000

This formula calculates de depreciation expense each year from the purchase date, which means that on septemeber 1 of 2009 the company will register a depreciation expense of $4,000. But, from september 1,2008 to December 31, 2008 is less than a year we have to calculate the depreciation for each month.

Depreciation (month) = $4,000/12 = $333,33

But since that depreciation would be for december 1, we need to calculate the depreciation for each day

Depreciation (day) = $333,33/31 = $10,75

From september 1 to december 1: 3 months, then $333,333 x 3 = $1000

And from december 1 to december 31: 30 days, then $10,75 x 30 = $322, 58

The depreciation expense on December 31 is: $1000+$322, = $1322,58 that is almost $1,333. On January 1 the depreciation expense would be $1,333.