1. If an asset is purchased for $22,000, and has an estimated life of 6 years, a

Question

1. If an asset is purchased for $22,000, and has an estimated life of 6 years, and it costs $2,000 to install the asset, and it is not expected to have any salvage value after its six year useful life, how much will the depreciation be in the fourth year recorded on the income statement if the organization used straight-line depreciation? How much will the accumulated depreciation be for that asset on the balance sheet? If the organization uses an accelerated depreciation method such as Sum-of-the-years’ digit, will the depreciation expense in the fourth year be higher or lower than it would be using the straight line method? Will the accumulated depreciation be higher or lower after the fourth year than it would be using the straight line method?

Explanation / Answer

Calculation of depreciation using straight line method and accumulated depreciation Asset value to be depreciated = Cost of the asset + installation cost = $22000 + $2000 = $24000 Estimated useful life asset = 6 years Depreciation per year = Asset value to be depreciated / Estimated useful life asset = $24000 / 6 years = $4000 Year Depreciation Accumulated depreciation 1 $                                    4,000.00 $                                       4,000.00 2 $                                    4,000.00 $                                       8,000.00 3 $                                    4,000.00 $                                    12,000.00 4 $                                    4,000.00 $                                    16,000.00 Depreciation for 4th Year = $4000 Accumulated depreciation for 4th year = $16000 Calculation of depreciation using sum of the years digit and accumulated depreciation Estimated useful life asset = 6 years Sum of the digits = n(n+1) / 2 = 6(6+1)/2 = 21 Year Multiplication factor Asset depreciable value Depreciation Accumulated depreciation A B A * B 1 6/21 $24,000.00 $6,857.14 $6,857.14 2 5/21 $24,000.00 $5,714.29 $12,571.43 3 4/21 $24,000.00 $4,571.43 $17,142.86 4 3/21 $24,000.00 $3,428.57 $20,571.43 Depreciation for 4th Year = $3428.57 Accumulated depreciation for 4th year = $20571.43 The depreciation amount 4th year and accumulated depreciation is higher in sum of the years digit method compared to straight line method.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.