On april 30, 2017, tilton products purchased machinery for $220,000. the useful life of this machinery is estimated at 8 years, with an $20,000 residual value.
assume that in its financial statements, tilton products uses straight-line depreciation and the half-year convention. depreciation expense recognized on this machinery in 2017 and 2018 will be
a. $18,750 in 2017 and $27,500 in 2018.
b. $15,000 in 2017 and $30,000 in 2018.
c. $12,500 in 2017 and $25,000 in 2018.
d. $27,500 in 2017 and $13,750 in 2018.

Correct answer is letter C, $12,500 in 2017 and $25,00 in 2018

Explanation:

Half year convention is a method used that assumes asset is used for one-half on its first year, irrespective on the date of acquisition. So the computation of depreciation on 2017 is one-half of its annual depreciation using straight line method and full one year on 2018.

Formula : (Cost of an asset - salvage value) / life of an asset

($220,000 - $20,000) / 8 years = $25,000 (annual depreciation) divide by 2 = $12,500

Therefore, there will be $12,500 depreciation on 2017 and $25,000 depreciation on 2018

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