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 $1,800 as depreciation expense each year for 5 years. Explanation of Why Other Options Are Incorrect Now, let’s look at the other options and explain why they are not correct: A. 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. It does not allocate an equal amount each year. The formula for the Declining Balance Method is: [ \text{Depreciation Expense} = \text{Book Value at Beginning of Year} \times \text{Depreciation Rate} ] This results in a decreasing expense over time, which is contrary to the equal allocation of the Straight-Line Method. 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 production levels, 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. This method also does not allocate an equal amount each year. Summary of Key Points

• The Straight-Line Method allocates an equal amount of depreciation expense each year over the useful life of an asset.
• The formula for calculating annual depreciation is based on the asset's cost, salvage value, and useful life.
• Other methods like Declining Balance, Units of Production, and Sum-of-the-Years'-Digits do not provide equal annual depreciation, making them unsuitable for this question.
• Understanding the differences between these methods is crucial for accurate financial reporting and asset management.

This thorough understanding of depreciation methods will help you in both your exams and practical applications in financial accounting.