Question

Cutter Enterprises purchased equipment for $84,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $8,400. Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be: (Do not round depreciation rate per year)

Answer 1

$25,200 and $58,800

Step-by-step explanation:

The computation of the depreciation expense and the book value using the sum-of-the-years'-digits method is shown below:

The depreciation expense is

= (Purchase cost - residual value) × useful life ÷ (sum of years)

= ($84,000 - $8,400) × 5 years ÷ (1 + 2 + 3 + 4 + 5)

= $75,600 × 5 years ÷ 15 years

= $25,200

And, the book value is

= Purchase cost - depreciation expenses

= $84,000 - $25,200

= $58,800

We simply applied the above formulas