Question

8. B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2018. The change affects machinery purchased at the beginning of 2016 at a cost of $72,000. The machinery has an estimated life of five years and an estimated residual value of $3,600. What is B's 2018 depreciation expense?

Answer 1

B's 2018 depreciation expense = $ 9,120

Explanation

The depreciation prior to the change is as follows:
Sum-of-the-years’-digits = [5 (5+1)] / 2 = 15
Calculation of Depreciation under Sum-of-the-years’-digits Method
Year	Remaining estimated useful life at beginning of year	Sum-of-the- years’-digits	Annual depreciation
2016	5	5/15	$ 22,800.00	([$72,000 - 3,600] × 5/15)
2017	4	4/15	$ 18,240.00	([$72,000 - 3,600] × 4/15)
	Accumulated depreciation		$ 41,040.00
Calculation of Depreciation under straight-line Method
Asset’s depreciable cost ($72,000 - 3,600)			$ 68,400.00
Accumulated depreciation to date (calculated above)			(41,040.00)
Undepreciated cost, Jan. 1, 2018			$ 27,360.00
Remaining useful life			3 years
Annual straight-line depreciation 2018-2020			$ 9,120.00