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On January 1, 2021, the Allegheny Corporation purchased equipment for $127,000. The estimated service life of the equipment is 10 years and the estimated residual value is $6,000. The equipment is expected to produce 224,000 units during its life.

Required:
Calculate depreciation for 2021 and 2022 using each of the following methods.

3. Assume instead the equipment was purchased on October 1, 2021. Calculate depreciation for 2021 and 2022 using each of the two methods. Partial-year depreciation is calculated based on the number of months the asset is in service. (Do not round intermediate answers and round your answers to the nearest whole dollar amount.)

2021 2022

Sum of the three years digits:

One hundred fifty percent declining balance :

Answer 1

Sum of the years method:

Sum of years =1+2+3+.......+10 = 55

Total depreciable value =1,27,000 - 6,000 =1,21,000

(2021) For 1st year depreciation = 1,21,000 x 10/55 = 22,000

(2022) For 2nd year depreciation = 1,21,000 x 9/55 = 19,800

One hundred fifty percent declining balance

Depreciable value =121,000

Depreciation per year =121,000/10 =12,100

straight line Depreciation rate = 12,100/127,000 x 100 =9.5%

Rate for calculating depreciation = 9.5% x 150% = 14.25%

Depreciation for 2021 =127,000 x 14.25% = 18,098

Value of asset after depreciation = 108,902

Depreciation for 2022 =108,902 x 14.25% = 15,519

3. Sum of the years digit method:

Depreciation for 1 year (from 1 oct 2021 to 30 sep 2022) =  22,000

Depreciation for the year 2021 (3 months) =22,000 x 3/12 = 5,500

Depreciation for 2nd year (from 1 oct 2021 to 30 sep 2022) =19800

Depreciation for the year 2022(9 months of 1st year + 3 months of 2nd year) =

=22,000 x 9/12 + 19800 x 3/12

=16,500 + 4,950

= 21,450

so depreciation for 2021 =5,500 and for 2022 =21,450

One hundred fifty percent declining balance:

Rate as calculated above =14.25%

Depreciation for 2021 (for 3 months) = 127,000 x 14.25% x 3/12 = 4,524

Value of asset after depreciation = 122,476

Depreciation for 2022 = 122,476 x 14.25% = 17453