Question

Use of the sum-of-the-years'-digits method

a. results in residual value being ignored.
b. means the denominator is the years remaining at the beginning of the year.
c. means the book value should not be reduced below residual value.
d. All of these answer choices are correct

Answer 1

The correct answer is that the sum-of-the-years'-digits method means the book value should not be reduced below residual value. The residual value is considered in the depreciation calculation, ensuring the book value remains above it.

Step-by-step explanation:

The use of the sum-of-the-years'-digits method in accounting does not ignore the residual value of an asset. Instead, it means that the book value of the asset should not be reduced below the predetermined residual value over the course of its depreciation schedule. Therefore, option c is correct: it means the book value should not be reduced below residual value. The method involves a depreciation schedule where the denominator is the sum of the years' digits, and the numerator is the number of years remaining in the asset's life at the beginning of the year. Each year, the depreciation expense is calculated based on this fraction times the depreciable base, which is the cost minus the residual value.