Question

Cutter Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $3,600. Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be: (Do not round depreciation rate per year)

Answer 1

• All working forms part of the answer
• Working

A	Cost	$            60,000.00
B	Residual Value	$              3,600.00
C=A - B	Depreciable base	$            56,400.00
	Sum of digits of life of 5 years	=1+2+3+4+5 = 15

• Depreciation expense

Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
2018	$              56,400.00	[56400 x 5/15]	$         18,800.00	$             18,800.00	$        41,200.00
2019	$             56,400.00	[56400 x 4/15]	$         15,040.00	$             33,840.00	$        26,160.00
2020	$              56,400.00	[56400 x 3/15]	$         11,280.00	$             45,120.00	$        14,880.00
2021	$              56,400.00	[56400 x 2/15]	$            7,520.00	$             52,640.00	$           7,360.00
2022	$              56,400.00	[56400 x 1/15]	$            3,760.00	$             56,400.00	$           3,600.00

• Answer

Depreciation expense for 2018 = $ 18,800

Book Value on 31 Dec 2018 = $ 41,200