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Equipment costs $27,000, has a residual value of $900 and a three-year useful life. Using the straight-line method, what is the annual depreciation charge?
A$8,700
B$9,000
C$8,400
D$13,050
Answer & Solution
Correct answer: A. $8,700
1. Straight-line charge = (Cost − Residual value) ÷ Useful life in years.
2. Depreciable amount $= \$27{,}000 - \$900 = \$26{,}100$.
3. Annual charge $= \$26{,}100 \div 3 = \$8{,}700$.
4. Option B forgets to deduct residual value ($27{,}000 \div 3$).
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.5.2 "Straight-Line Method", p.152_
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