Question

1. Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000.

Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be:

Multiple Choice

• $19,200 and $30,800 respectively.

• $19,200 and $28,800 respectively.

• $17,600 and $26,400 respectively.

• $17,600 and $32,400 respectively.

  2. Cutter Enterprises purchased equipment for $66,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $7,500.
  
  Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be: (Do not round depreciation rate per year)

  Multiple Choice

• $22,000 and $36,500 respectively.

• $19,500 and $46,500 respectively.

• $22,000 and $44,000 respectively.

• $19,500 and $39,000 respectively.

Answer 1

1.

Depreciable cost = Cost price - Residual value

= 72,000 - 6,000

= $66,000

Depreciation per year = Depreciable cost x Year's outstanding/Sum of years

Depreciation for year 2018 = 66,000 x 5/15

= $22,000

Depreciation for year 2019 = 66,000 x 4/15

= $17,600

Book value as at December 31, 2019 = Cost price - Accumulated depreciation for year 2018 and 2019

= 72,000 - (22,000 + 17,600)

= 72,000 - 39,600

= $32,400

Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be:

$17,600 and $32,400 respectively.

Hence, correct option is (d)

2.

Depreciable cost = Cost price - Residual value

= 66,000 - 7,500

= $58,500

Depreciation per year = Depreciable cost x Year's outstanding/Sum of years

Depreciation for year 2018 = 58,500 x 5/15

= $19,500

Book value as at December 31, 2018 = Cost price - Accumulated depreciation for year 2018

= 66,000 - 19,500

= $46,500

Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be:

$19,500 and $46,500 respectively.

Hence, correct option is (b)