Question

Knowledge Check 01 On January 1, Year 1, Corcoran Company purchased equipment for $36,000. Residual value at the end of an estimated four-year service life is expected to be $6,000. The company uses the sum-of-the-years’ digits method. For how much would each item below be reported at the end of Year 2?

1. Depreciation expense

2. Accumulated depreciation

3. Book value

Answer 1

Cost of Equipment			36000
Less: Salvage value			6000
Depreciable amount			30000
Sum of years digit of life: 4+3+2+1 =10
Annual depreciation for 1st year: 30000/10*4 = 12000
Annual depreciation for 2 nd yer:30000/10*3 = 9000
Req1:
Depreciation expense for Year-2: 9000
Req 2:
Accumulated dep at the end of Year-2:12000+9000 = 21000
Req 3:
Cost of Equipment			36000
Less: Accumulated depreciation			21000
Book value of Equipment			15000