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20. Broadway Ltd. purchased equipment on January 1, 2014, for $840,000, estimati

ID: 2451154 • Letter: 2

Question

20.

Broadway Ltd. purchased equipment on January 1, 2014, for $840,000, estimating a 7-year useful life and no residual value. In 2014 and 2015, Broadway depreciated the asset using the straight-line method. In 2016, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2016 on this equipment? (Do not round your depreciation rate.)

a) $100,000

b) $120,000

c) $240,000

d) $200,000

Broadway Ltd. purchased equipment on January 1, 2014, for $840,000, estimating a 7-year useful life and no residual value. In 2014 and 2015, Broadway depreciated the asset using the straight-line method. In 2016, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2016 on this equipment? (Do not round your depreciation rate.)

a) $100,000

b) $120,000

c) $240,000

d) $200,000

Explanation / Answer

Ans-d)$200000

Purchase on 1st jan 2014           $840000

Less-depreciation for 2014         $120000(840000/7)

Balance as on 1st jan 2015         $720000

Less-depreciation for 2015         $120000(840000/7)

Balance as on 1st jan 2016         $600000

Depreciation under sum-of-years'-digits method

Sum of each year remaining life (5+4+3+2+1)15

% of depreciation =5/15

                             =33%

Depreciation for 2016(600000*33%)$200000