Question

Concord Company purchases equipment on January 1, Year 1, at a cost of $498,000. The asset is expected to have a service life of 12 years and a salvage value of $44,820.

Required:
a. Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method.
b. Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years'-digits method.

Answer 1

depreciable value = $498,000 - $44,820 = $453,180

a. depreciation expense per year = $453,180 / 12 years = $37,765

depreciation expense year 1 = $37,765

depreciation expense year 2 = $37,765

depreciation expense year 3 = $37,765

b. total digits = 12+11+10+9+8+7+6+5+4+3+2+1 = 78

depreciation expense year 1 = 12/78 x $453,180 = $69,720

depreciation expense year 2 = 11/78 x $453,180 = $63,910

depreciation expense year 3 = 10/78 x $453,180 = $58,100