Question

Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000. Using the sum-of-the-years'-digits method, depreciation for 2011 and book value at December 31, 2011 would be: $22,000 and $44,000. $22,000 and $50,000. $24,000 and $48,000. $24,000 and $42,000.

Answer 1

$22000 and $50000.

Step-by-step explanation:

Given: Purchased value of equipment- $72000.

Residual value- $6000

Estimated useful life of equipment- $ 5 years.

Now, finding value of depreciation for 2011 using the sum of the years digits method.

Depreciation cost=
`(\textrm{Purchased value - residual value}`

⇒ Depreciation cost=
`(72000-6000)= \$ 66000`

∴ Depreciation cost= $66000.

Depreciation fraction for 1st year=
`(5)/(1+2+3+4+5) = (5)/(15)`

Depreciation expense for 1st year=
`(5)/(15) * 66000= \$ 22000`

∴ Depreciation for 2011 is $22000.

Next, lets find out the book value at the end of first year.

Book value=
`(\textrm{Purchased value - depreciation expense})`

Book value=
`(72000 - 22000) = \$ 50000`

∴ Book value at December 2011 is $50000.