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.

For example, if 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 ] Thus, the company would record a depreciation expense of $1,800 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 the depreciation expense, meaning that more depreciation is recorded in the earlier years of an asset's life and less in the later years. The formula for the Double Declining Balance Method is: [ \text{Depreciation Expense} = \text{Book Value at Beginning of Year} \times \left(\frac{2}{\text{Useful Life}}\right) ]

• This method does not allocate an equal amount of depreciation each year, which is why it is not the correct answer.

B. Units of Production Method: - This method bases depreciation on the actual usage of the asset rather than time. The formula is: [ \text{Depreciation Expense} = \left(\frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Total Estimated Units}}\right) \times \text{Units Produced in the Period} ]

• Since the expense varies with the level of production, it does not provide an equal amount of depreciation each year.

D. Sum-of-the-Years'-Digits Method: - This is another accelerated depreciation method that results in higher depreciation expenses in the earlier years and lower expenses in the later years. The formula involves calculating the sum of the years of the asset's useful life and applying a fraction of that sum to the depreciable base each year.

• Like the Double Declining Balance Method, it does not allocate an equal amount of depreciation each year.

Common Pitfalls

• Students often confuse the Straight-Line Method with accelerated methods like Double Declining Balance or Sum-of-the-Years'-Digits. Remember, the key characteristic of the Straight-Line Method is its equal allocation of depreciation expense.
• Miscalculating the salvage value or useful life can lead to incorrect depreciation expense calculations.

Revision Summary

• The Straight-Line Method allocates an equal amount of depreciation expense each year.
• Use the formula: (\text{Annual Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}).
• Other methods like Double Declining Balance and Units of Production do not provide equal annual depreciation.
• Understanding the characteristics of each method is crucial for accurate financial reporting.