Partial Periods
Response to the following problem:
On May 10, 2010, the Horan Company purchased equipment for $25,000. The equipment has an estimated service life of five years and zero residual value. Assume that straight-line depreciation is used.
Required
Compute the depreciation for 2010 for each of the following four alternatives:
1. The company computes depreciation to the nearest day. (Use 12 months of 30 days each.)
2. The company computes depreciation to the nearest month. Assets purchased in the first half of the month are considered owned for the whole month.
3. The company computes depreciation to the nearest whole year. Assets purchased in the first half of the year are considered owned for the whole year.
4. The company records one-half year's depreciation on all assets purchased during the year.