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Cutter Enterprises purchased equipment for $72,000 on January 1, 2018
Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000.
Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be: A) $19,200 and $28,800 respectively. B) $19,200 and $30,800 respectively. C) $17,600 and $32,400 respectively. D) $17,600 and $26.400 respectively.
Expert Solution
Answer
C )
Explanation
Computation of Depreciation for 2019 and Book Value at December 31, 2019:
Depreciation Expenses = Depreciable Cost * Remaining Useful Life of Asset/Sum of Years' Digit
Here,
Depreciable Cost = Cost of Equipment - Residual Value = $72,000 - $6,000 = $66,000
Useful Life of Asset = 5 Years
Sum of Years' Digit = 1+2+3+4+5 = 15
Depreciation Expense for 2018 = $66,000 * 5/15 = $22,000
Depreciation Expense for 2019 = $66,000 * 4/15 = $17,600
Book Value at December 31, 2019 = $72,000 - $22,000 - $17,600 = $32,400
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