In: Finance
A grader has an initial cost of $220,000 and an estimated useful life of 10 years. The salvage value after 10 years of use is estimated to be $25,000. What is the annual depreciation amount in the fourth year if the sum-of-the-years method of depreciation accounting is used?
Select one:
a. $19,500.00
b. $24,818.18
c. $28,363.64
d. $99,454.55
Answer is $24,818.18
Initial Cost = $220,000
Salvage Value = $25,000
Useful Life = 10 years
Depreciable Cost = Initial Cost - Salvage Value
Depreciable Cost = $220,000 - $25,000
Depreciable Cost = $195,000
Sum-of-the-years digit = 1 + 2 + … + 9 + 10
Sum-of-the-years digit = 55
Depreciation for Year 4 = $195,000 * (7/55)
Depreciation for Year 4 = $24,818.18