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Intermediate Accounting: Reporting...

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

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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 1360,000×515=120,000
Year 2360,000×415=96,000

Table (1)

Working notes:

1

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