The correct option is C. Straight-Line Method. Explanation of the Correct Answer The Straight-Line Method of depreciation is the most straightforward and commonly used method for allocating the cost of an asset over its useful life. Here’s how it works:

1. Definition: The Straight-Line Method spreads the cost of an asset evenly across its useful life. This means that the same amount of depreciation expense is recorded each year until the asset is fully depreciated.
2. Calculation: To calculate the annual depreciation expense using the Straight-Line Method, you can use the following formula:

[ \text{Annual Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life}} ]

• Cost of Asset: The initial purchase price of the asset.
• Salvage Value: The estimated value of the asset at the end of its useful life.
• Useful Life: The period over which the asset is expected to be used.
• Example Calculation: Suppose a company purchases a machine for $10,000, expects it to have a salvage value of $1,000, and estimates its useful life to be 5 years. The annual depreciation expense would be calculated as follows:

[ \text{Annual Depreciation Expense} = \frac{10,000 - 1,000}{5} = \frac{9,000}{5} = 1,800 ] Therefore, the company would record $1,800 as depreciation expense each year for 5 years. Explanation of Why Other Options Are Incorrect Now, let’s look at why the other options are not correct:

• A. Double Declining Balance Method: This method accelerates depreciation by applying a constant rate to the declining book value of the asset each year. This means that more depreciation expense is recognized in the earlier years of the asset's life and less in the later years. Therefore, it does not allocate the same amount of depreciation each year.
• B. Units of Production Method: This method bases depreciation on the actual usage of the asset. The depreciation expense varies depending on how much the asset is used in a given period. For example, if a machine is used more in one year than another, the depreciation expense will be higher in that year. Thus, it does not provide a consistent annual expense.
• D. Sum-of-the-Years'-Digits Method: This is another accelerated depreciation method that allocates more depreciation in the earlier years of an asset's life and less in the later years. The formula involves summing the digits of the years of the asset's useful life and applying a fraction of the remaining life to the depreciable base. Like the Double Declining Balance Method, it does not result in equal annual depreciation.

Common Pitfalls

• Confusing Methods: Students often confuse the Straight-Line Method with accelerated methods. Remember that the Straight-Line Method is the only one that allocates the same amount each year.
• Miscalculating Salvage Value: Ensure that the salvage value is accurately estimated, as it directly affects the annual depreciation expense.
• Ignoring Useful Life: The useful life of the asset must be realistic and based on the asset's expected usage and wear and tear.

Revision Summary

• The Straight-Line Method allocates the same amount of depreciation expense each year.
• Use the formula: (\text{Annual Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}).
• Other methods (Double Declining Balance, Units of Production, Sum-of-the-Years'-Digits) do not allocate equal depreciation each year.
• Be careful with estimates of salvage value and useful life to ensure accurate calculations.