Question

Depreciation methods akron incorporated purchased an asset at the beginning of year 1 for $375,000. the estimated residual value is $15,000. Akron estimates that the asset has a service life of 5 years. calculate the depreciation expense using the sum-of-the-years'-digits method for years 1 and 2 of the asset's life.

A) Year 1: $90,000, Year 2: $72,000
B) Year 1: $75,000, Year 2: $60,000
C) Year 1: $60,000, Year 2: $48,000
D) Year 1: $48,000, Year 2: $38,400

Answer 1

Using the sum-of-the-years'-digits method, the depreciation expense for the first year is $120,000 and for the second year is $96,000, which means none of the given options A, B, C, or D are correct.

Step-by-step explanation:

To calculate the depreciation expense using the sum-of-the-years'-digits method, we need to determine the total number of years worth of digits, which for a 5-year life span is calculated as 5+4+3+2+1=15 (the sum of the years' digits). Next, allocate the depreciable base (cost minus residual value) to each year, giving more weight to the earlier years.

The depreciable base is $375,000 (cost) - $15,000 (residual value) = $360,000. For year 1, use 5/15 of the depreciable base: $360,000 * (5/15) = $120,000 depreciation expense. The remaining depreciable base after year 1 is $360,000 - $120,000 = $240,000.

For year 2, use 4/15 of the initial depreciable base: $360,000 * (4/15) = $96,000 depreciation expense. Thus, neither of the choices A, B, C, or D is correct as they do not match our calculations.