Question

Spiro Corp. uses the sum-of-the-years' digits method to depreciate equipment purchased in January 20X3 for $20,000. The estimated salvage value of the equipment is $2,000, and the estimated useful life is four years.

What should Spiro report as the asset's carrying amount as of December 31, 20X5?

a) $1,800

b) $2,000

c) $3,800

d) $4,500

Answer 1

The correct option is option c $3800.

Explanation:

As the depreciation method is sum of the years method for which the value is given as

Depreciation base= 20000-2000=18000

Year Depreciation Remaining Depreciation Depreciation Book

Base Life Fraction Value Value

1 18000 4 4/(1+2+3+4) 4/10*18000 20000-7200

=4/10 7200 12800

2 18000 3 3/(1+2+3+4) 3/10*18000 12800-5400

=3/10 5400 7400

3 18000 2 2/(1+2+3+4) 2/10*18000 7400-3600

=2/10 3600 3800