Question

$6.000 Cutter Enterprises purchased equipment for $72,000 on January 1, 2021. The equipment is expected to have a five-year life and a residual value Using the sum-of-the-years'-digits method, depreciation for 2021 and book value at December 31, 2021, would be: (Do not round depreciation rate per year) $22,000 and $44,000 respectively $22,000 and $50,000 respectively $24,000 and $42.000 respectively $24,000 and $48,000 respectively

Answer 1

OPTION: $22000 and $50000 respectively

EXPLANATION:

Under sum-of-the-years'-digit method,

Depreciation per annum = (initial cost - residual value) x (remaining useful life of asset/sum of the years' digit)

Sum of the years' digit = 1+2+3+4+5 = 15

Therefore,

For year 2021,

Depreciation expenses = ($72000 - $6000) x (5/15) = $22000

Book value at the December 31, 2021 = Book value in the beginning - depreciation expenses

= $72000 - $22000 = $50000