Question

QUESTION 2 A machine with a four-year estimated useful life and an estimated residual value of $10,000 was acquired on January 1, 2011 for $40,000. Would depreciation expense using sum-of-the-years-digits be higher or lower than depreciation expense using double-declining balance in the first year? Higher Lower Cannot answer based on only this information QUESTION 3 On January 1, 2011, New Company purchased a new copier for $22.000. The asset has an estimated life of four years and an estimated residual of $2,200. If the Company uses straight-line depreciation, compute the book value of the copier on January 1, 2012 $22,000 $4,950 $17,050 $14,850 None of the above Click Save and Submit to save and submit. Cliok Save All Answers to save all answers. Save All Answe

Answer 1

2. Depreciation under sum of digits method

= n*(n+1)/2 where n is useful life

= 4*(4+1)/2 = 10

Depreciation for first year = (40,000-10,000)*4/10 = 12,000

Double declining rate = 200/Useful life = 200/4 = 50%

Depreciation for first year = 40,000 * 50% = 20,000

Option B (Lower)

​​​​​​.

Depreciation for year = (Cost - Salvage value) /Useful life

= (22,000-2200)/4 = 4950 per year

Book value on Jan 1,2012 = 22,000 - 4950 = 17,050

Option C