Question

Cutter Enterprises purchased equipment for $42,000 on January 1, 2024. The equipment is expected to have a five-year life and a residual value of $3,300.

Using the sum-of-the-years'-digits method, depreciation for 2025 and book value on December 31, 2025, would be:
A) $11,200 and $13,500, respectively.
B) $10,320 and $18,780, respectively.
C) $10,320 and $15,480, respectively.
D) $11,200 and $16,800, respectively.

Answer 1

To calculate the annual depreciation expense, subtract the residual value from the initial cost of the equipment and divide it by the expected useful life of the equipment.

Step-by-step explanation:

The question is related to accounting and can be categorized under the subject of Business. It involves calculating depreciation expense for equipment.

To calculate the annual depreciation expense, we need to subtract the residual value from the initial cost of the equipment and divide it by the expected useful life of the equipment.

In this case, the initial cost of the equipment is $42,000 and the residual value is $3,300. The useful life is given as five years.

Annual depreciation expense = (Initial cost - Residual value) / Useful life

= ($42,000 - $3,300) / 5

= $38,700 / 5

= $7,740

Therefore, the annual depreciation expense is $7,740.