Question

Spiro Corp. uses the sum-of-the-years' digits method to depreciate equipment purchased in January 20X3 for $20,000. The estimated salvage value of the equipment is $2,000, and the estimated useful life is four years.
What should Spiro report as the asset's carrying amount as of December 31, 20X5?

a) $1,800

b) $2,000

c) $3,800

d) $4,500

Answer 1

Answer:

The correct option is option c $3800.

Step-by-step explanation:

As the depreciation method is sum of the years method for which the value is given as

Depreciation base= 20000-2000=18000

Year     Depreciation     Remaining     Depreciation   Depreciation        Book

                 Base                 Life               Fraction               Value              Value                                                  

1               18000                   4             4/(1+2+3+4)       4/10*18000   20000-7200                

                                                                =4/10                    7200             12800

2              18000                   3             3/(1+2+3+4)      3/10*18000    12800-5400                                    

                                                                =3/10                    5400             7400

3              18000                   2             2/(1+2+3+4)     2/10*18000    7400-3600                  

                                                                =2/10                   3600             3800