Question

Deluxe Ezra Company purchases equipment on January 1, Year 1, at a cost of $469,000. The asset is expected to have a service life of 12 years and a salvage value of $40,000.
Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years'-digits method.
Compute the amount of depreciation for each of Years 1 through 3 using the double-declining-balance method. (Round depreciation rate to 2 decimal places, e.g. 15.84%. Round answers to 0 decimal places, e.g. 45,892.)

Answer 1

Answer:

to calculate depreciation using the sum-of-the-years'-digits method:

n(n+1) divided by 2 = [12(13)] / 2 = 78

depreciable value = cost - salvage value = $469,000 - $40,000 = $429,000

1. depreciation year 1 = 12/78 x $429,000 = $66,000
2. depreciation year 2 = 11/78 x $429,000 = $60,500
3. depreciation year 3 = 10/78 x $429,000 = $55,000

the formula used to calculate depreciation using the double-declining-balance method is:

2 x cost of the asset x depreciation rate

1. depreciation year 1 = 2 x $469,000 x 1/12 = $78,167
2. depreciation year 2 = 2 x ($469,000 - $78,167) x 1/12 = $65,139
3. depreciation year 3 = 2 x ($390,833 - $65,139) x 1/12 = $54,282