Question

Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000. Using the sum-of-the-years'-digits method, depreciation for 2011 and book value at December 31, 2011 would be: $22,000 and $44,000. $22,000 and $50,000. $24,000 and $48,000. $24,000 and $42,000.

Answer 1

Answer:

$22000 and $50000.

Explanation:

Given: Purchased value of equipment- $72000.

           Residual value- $6000

           Estimated useful life of equipment- $ 5 years.

Now, finding value of depreciation for 2011 using the sum of the years digits method.

Depreciation cost= $(\textrm{Purchased value - residual value}$

⇒ Depreciation cost= $(72000-6000)= \ 66000$

∴ Depreciation cost= $66000.

     

Depreciation fraction for 1st year= $\frac{5}{1+2+3+4+5} = \frac{5}{15}$

Depreciation expense for 1st year= $\frac{5}{15} \times 66000= \ 22000$

∴ Depreciation for 2011 is $22000.

Next, lets find out the book value at the end of  first year.

Book value= $(\textrm{Purchased value - depreciation expense})$

Book value= $(72000 - 22000) = \ 50000$

∴ Book value at December 2011 is $50000.