Scenario: On March 1st, 2022 you buy a lemonade machine for $500. At the end of its 4 year life, it'll have $100 of salvageable value. Calculate the annual depreciation on the printing press over the 4 years with the straight-line depreciation method.
We can use the following formula to determine the annual depreciation on our lemonade machine.
Annual Depreciation = (Original Cost - Residual Value) / (Service Life)
In this scenario, we're given the following values...
Scenario: On March 1st, 2022 you buy a lemonade machine for $500. At the end of its 4 year life, it'll have $100 of salvageable value.
Write the adjusting entry on March 1st, 2023 for depreciation on the lemonade machine with the straight-line depreciation method.
...which can be plugged in like so:
Annual Depreciation = (Original Cost - Residual Value) / Service Life
Annual Depreciation = ($500 - $100) / 4 years
Residual value (a.k.a. salvageable value) is the value of the equipment at the end of its life.
This means that our lemonade machine depreciates by $100 per year!
Annual Depreciation = (Original Cost - Residual Value) / Service Life
Annual Depreciation = ($500 - $100) / 4 years
Annual Depreciation = $400 / 4
Annual Depreciation = $100
Annual Depreciation = (Original Cost - Residual Value) / Service Life
Annual Depreciation = ($500 - $100) / 4 years
Annual Depreciation = $400 / 4
Annual Depreciation = $100
This means that in our accounting books, our lemonade machine will depreciate by $100 consistently each year!
