   Chapter 11, Problem 2RE ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

#### Solutions

Chapter
Section ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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# Akron Incorporated purchased an asset at the beginning of Year 1 for $375,000. The estimated residual value is$15,000. Akron estimates that the asset has a service life of 5 years. Calculate the depreciation expense using the sum-of-the-years’-digits method for Years 1 and 2 of the asset’s life.

To determine

Calculate the depreciation expense of Company A for year 1 and year 2 under the sum of the years-digits method.

Explanation

Sum-of- the-years’ digits method:

Sum-of-the years’ digits method determines the depreciation expense by multiplying the depreciable base and declining fraction.

Calculate the depreciation expense of Company A for year 1 and year 2 under the sum of the years-digits method as follows:

 Year Depreciable Base  ($) (2) Depreciation rate per year Depreciation ($) Year 1 360,000 × 515 = 120,000 Year 2 360,000 × 415 = 96,000

Table (1)

Working notes:

1

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