Question

Cutter Enterprises purchased equipment for $57,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $4,500.

Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be:

A.$15,200 and $22,800 respectively.

B.$14,000 and $25,500 respectively.

C.$14,000 and $21,000 respectively.

D. $15,200 and $18,300 respectively.

Answer 1

Answer is B.

Cost of Equipment = $57,000
Residual Value = $4,500
Useful Life = 5 years

Depreciable Value = Cost of Equipment - Residual Value
Depreciable Value = $57,000 - $4,500
Depreciable Value = $52,500

Sum of years’ digits = 5 + 4 + 3 + 2 + 1
Sum of years’ digits = 15

Depreciation for 2018 = $52,500 * 5/15
Depreciation for 2018 = $17,500

Book Value at end of 2018 = $57,000 - $17,500
Book Value at end of 2018 = $39,500

Depreciation for 2019 = $52,500 * 4/15
Depreciation for 2019 = $14,000

Book Value at end of 2019 = $39,500 - $14,000
Book Value at end of 2019 = $25,500