Question

XYZ Industries purchased a new asset on March 31, 2020. The cost of the asset was...

  1. XYZ Industries purchased a new asset on March 31, 2020. The cost of the asset was 140,000, with an estimated useful life of 8 years, and a salvage value of $15,000. XYZ uses the sum-of-the-years-digits method to depreciate the asset.

    What is the book value of the asset on December 31, 2022?

    67,709

    72,291

    21,701

    72,917

    74,027

    118,299

    67,083

    None of the other answer choices is correct.

    65,973
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Answer #1

Depreciation is a normal wear and tear of an asset. There are various methods for depreciation like straight line, double declining, MACRS etc

sum of year digit method = (Cost-salvage) * Remaining useful life of an asset/sum of year digit

8 sum of year digit = 8+7+6+5+4+3+2+1

=36

For the year 2020 depreciation would be calculated for 9 months

Year cost-salvage depreciation fraction depreciation expense Book value
2020 $125,000($140,000-15,000) 8/36 20,834[$125,000*8/36]/12*9months $119,166[$140,000-20,834]
2021 $125,000 7/36 $24,306[$125,000*7/36] $94,860[$119,166-24,306]
2022 $125,000 6/36 $20,833[$125,000*6/36] $74,027[$94,860-20,833]

Answer=$74,027

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