Question

Cutter Enterprises purchased equipment for $99,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $3,900.

Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be: (Do not round depreciation rate per year)

Multiple Choice

• $33,000 and $66,000 respectively.

• $31,700 and $67,300 respectively.

• $33,000 and $62,100 respectively.

• $31,700 and $63,400 respectively.

Answer 1

Answer: $31,700 and $67,300 respectively.

Explanation

Sum-of-the-years’-digits = [5 (5+1)] / 2 = 15
Calculation of Depreciation under Sum-of-the-years’-digits Method
Year	Remaining estimated useful life at beginning of year	Sum-of-the- years’-digits	Applicable percentage	Annual depreciation
2018	5	5/15	33.33%	31,700.00	(99,000 - 3,900 ) * 33.33%
	Book value at December 31, 2018 = 99,000 - 31,700 = $ 67,300