Question

Nash Company purchases equipment on January 1, Year 1, at a cost of $480,000. The asset is expected to have a service life of 12 years and a salvage value of $43,200.

A. Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. (Round answers to 0 decimal places, e.g. 5,125.)

Depreciation for Year 1
Depreciation for Year 2
Depreciation for Year 3

B. Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years'-digits method.

Depreciation for Year 1
Depreciation for Year 2
Depreciation for Year 3

Answer 1

Straight Line Depreciation Method Depreciation for Year 1 $36,400 Depreciation for Year 2 $36,400 Depreciation for Year 3 $36,400 Sum-of-the-years'-digits method Depreciation for Year 1 $67,200 Depreciation for Year 2 $61,600 Depreciation for Year 3 $56,000 Working Notes: Equipment Cost = $480,000 Salvage Value = $43,200 Service Life = 12 Years Straight Line Method: Depreciation =(Equipment cost - Salvage value) service life = ($480,000-$43,200)/12 = $36,400 Depreciation is same for all 12 years in Straight line Depreciation Method Sum of years digits method Depreciation factor = n(n+1)/2 = 12(12+1)/2 = 78 Depreciation for Year 1 = ($480,000-$43,200)*12/78 = $67,200 Depreciation for Year 2 = ($480,000-$43,200)*11/78 = $61.600 Depreciation for Year 3 = (S480,000-$43,200)* 10/78 = $56,000