Question

In: Accounting

Cutter Enterprises purchased equipment for $102,000 on January 1, 2018. The equipment is expected to have...

Cutter Enterprises purchased equipment for $102,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,600.

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)

Multiple Choice

$25,440 and $44,760 respectively.
$25,440 and $38,160 respectively.
$27,200 and $40,800 respectively.
$27,200 and $34,200 respectively.

Expert Solution

Given,

Cost of Equipment is $102,000.

Residual Value is $6,600

Useful Life is 5 years

Depreciable Value = Cost of Equipment - Residual Value

Depreciable Value = $102,000 - $6,600

Depreciable Value = $95,400

Sum of years’ digits = 5 + 4 + 3 + 2 + 1

Sum of years’ digits = 15

Depreciation for the year 2018 = $95400 * 5/15

Depreciation for the year 2018 = $31,800

Book Value at end of 2018 = Cost of the asset - Depreciation for 2018

Book Value at end of 2018 = $102,000 - 31,800

Book Value at end of 2018 = $70,200

Depreciation for the year 2019 = $95,400 * 4/15

Depreciation for the year 2019 = $25,440

Book Value at end of 2019 = Book value at end of 2018 - Depreciation for 2019

Book Value at end of 2019 = $70,200 - $25,440

Book Value at end of 2019 = $44,760

Hence, the correct option is $25,440 and $44,760 .

ekkarill92 answered 9 months ago

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