Question

In: Finance

A grader has an initial cost of $220,000 and an estimated useful life of 10 years....

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

Solutions

Expert Solution

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


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