Question

Fawkes Enterprises purchased equipment for $196,000 on January 1, 2021. The equipment is expected to have a 7-year life and a residual value of $14,000. Fawkes uses the sum-of-the-years'-digits method to calculate depreciation. What amount of depreciation would Fawkes record in 2021 and 2022? What is the book value of the equipment on December 31, 2021 and December 31, 2022?

Answer 1

Solution

Year	Depreciation expense	Ending Book Value
2021	$                   45,500	$             150,500
2022	$                   39,000	$             111,500

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Working

Sum-of-the-Years'-Digits Method
A	Cost	$ 196,000
B	Residual Value	$ 14,000
C=A - B	Depreciable base	$ 182,000
	Sum of digits with 5 years (7+6+5+4+3+2+1)	28

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Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
2021	$      182,000	(182000/28 x 7)	$                   45,500	$                    45,500	$             150,500
2022	$      182,000	(182000/28 x 6)	$                   39,000	$                    84,500	$             111,500