Sheffield Company purchased a piece of equipment at the beginning of 2014. The e

Question

Sheffield Company purchased a piece of equipment at the beginning of 2014. The equipment cost $504,000. It has an estimated service life of 8 years and an expected salvage value of $68,040. The sum-of-the-years'-digits method of depreciation is being used. Someone has already correctly prepared a depreciation schedule for this asset. This schedule shows that $84,770 will be depreciated for a particular calendar year.
Determine for what particular year the depreciation amount for this asset will be $84,770.
Year of depreciation is _________

Explanation / Answer

Sum of years digit = 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 36

Depreciation in Year 1 = 8/36 x (Original cost - Salvage Value) = 8/36 x ($504000 - $68040) = $96880

Depreciation in Year 2 = 7/36 x (Original cost - Salvage Value) = 7/36 x ($504000 - $68040) = $84770

Year of depreciation is Year 2.

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