Question

On January 1, 2021, the Allegheny Corporation purchased equipment for $343,000. The estimated service life of the equipment is 10 years and the estimated residual value is $24,000. The equipment is expected to produce 296,000 units during its life.

Required:
Calculate depreciation for 2021 and 2022 using each of the following methods.
1. Sum-of-the-years’-digits (Do not round intermediate calculations. Round final answers to the nearest whole dollar amount.)
2. One hundred fifty percent declining balance. (Round final answers to the nearest whole dollar amount.)
3. Assume instead the equipment was purchased on October 1, 2021. Calculate depreciation for 2021 and 2022 using each of the two methods. Partial-year depreciation is calculated based on the number of months the asset is in service. (Do not round intermediate answers and round your answers to the nearest whole dollar amount.)

Answer 1

Year 1: Sum of the Year Digits = $58,000

Year 2: Sum of the Year Digits = $52,200

Year 1: 150% Declining Balance = $51,450

Year 1: 150% Declining Balance = $43,733

Step-by-step explanation:

See Attachment

Answer 2

Answer & Explanation: Depreciation is the wear and tear of a given asset over a period of time.

1). Sum of the digits method of depreciation (SOYD) = (cost - salvage value) × year/ sum of digits

Sum if digits = 10 + 9 + 8 +7 + 6 + 5 + 4 + 3 +2 + 1 = 55

Cost - residual value = 343000 - 24000 = $319,000

SOYD =

Year 10 = 319,000 × 10/55 = 58,000

Year 9 = 319000 × 9/55 =52,200

2) 150% declining method = cost - salvage value × 150%/No. of useful life

= 319000 × 150%/10

= 319000 × 15% = $47,850