7. In January 20X1, Sweet Pea Company purchased equipment for $120,000, to be us

Question

7. In January 20X1, Sweet Pea Company purchased equipment for $120,000, to be used in its manufacturing operations. The equipment was estimated to have a useful life of eight years, with salvage value estimated at $12,000. Sweet Pea considered various methods of depreciation and selected the sum of the years' digits (SYD) method. On December 31, 20X2, the related allowance for accumulated depreciation should have a balance of: (a) $15,000 less than under the straight line method. (b) $15,000 less than under the double declining balance method. (c) $18,000 greater than under the straight line method. (d) $18,000 greater than under the double declining balance method.

Explanation / Answer

1) SYD depreciation (8*9)/2 36 Depreciation year 1= (120,000-12000)*8/36 108000*8/36 24000 year 2 (108000)*7/36 21000 Accumulated depreciation =(24000+21000)= 45000 Straight line (108000)/8 13500 Accumulated depreciation 13500*2= 27000 difference 18000 hence option c is the correct answer $18,000 greater than under the straight line method

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