Question

1. Calculate the straight-line and sum-of-years-digits depreciation schedules for a $450 video camera that will have a salvage value of $50 after five years of use.

Answer 1

Depreciation is a method used to allocate the cost of an asset over its useful life. The straight-line depreciation schedule for the video camera is $80 per year for 5 years. The sum-of-years-digits depreciation schedule varies each year, with decreasing annual depreciation amounts.

Step-by-step explanation:

Depreciation is a method used to allocate the cost of an asset over its useful life. There are different depreciation schedules that can be used, including the straight-line method and the sum-of-years-digits method.

For the video camera in question, let's start with the straight-line depreciation schedule:

1. Calculate the depreciable cost: $450 - $50 (salvage value) = $400.
2. Calculate the annual depreciation amount: $400 / 5 (years of use) = $80.
3. Using the straight-line method, the annual depreciation amount will be constant at $80 for each of the 5 years.

Now let's calculate the sum-of-years-digits depreciation schedule:

1. Calculate the sum of the digits: 5 + 4 + 3 + 2 + 1 = 15.
2. Calculate the fraction of the depreciable cost for each year: 5/15, 4/15, 3/15, 2/15, 1/15.
3. Calculate the annual depreciation amount: $400 * (5/15), $400 * (4/15), $400 * (3/15), $400 * (2/15), $400 * (1/15).

Using the sum-of-years-digits method, the annual depreciation amount will decrease each year over the 5-year period.