On April 1, Cyclone Company purchases a trencher for $286,000. The machine is expected to last five years and have a salvage value of $43,000. Compute depreciation expense at December 31 for both the first year and second year assuming the company uses the straight-line method.

With the straight line depreciation method, the value of an asset is reduced uniformly over each period until it reaches its salvage value. Straight line depreciation is the most commonly used and straightforward depreciation method for allocating the cost of a capital asset. It is calculated by simply dividing the cost of an asset, less its salvage value, by the useful life of the asset.

Using the straight-line method, the formula for annual depreciation expense is:

(cost – salvage value) / useful life = Annual depreciation expense

Where:

Cost of the asset is the purchase price of the asset.

Salvage value is the value of the asset at the end of its useful life.

Useful life of asset represents the number of periods/years in which the asset is expected to be used by the company.

So, The straight line depreciation for the machine would be calculated as follows:

Straight line depreciation expense = (Cost of asset - Salvage value)

useful life

= ($286,000 - $43,000) / 5 = $48,600

The depreciation expense each year would be $48,600 except in 2016 because it the machine was only used for 9 months

Depreciation expense in 2016 = (9 / 12) x $48,600 = $36,450

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