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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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Assume the same information as in RE11-2, except that Akron Incorporated purchased the asset on September 1, Year 1, instead of January 1, Year 1. Calculate the depreciation for Year 1 and Year 2 using the sum-of-the- years’-digits method.

To determine

Ascertain the depreciation expense of Company A for year 1 and year 2 under the sum of the year’s digit method.

Explanation

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

Sum-of- the-years’ digits method:  Sum-of-the years’ digits method determines the depreciation 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 year’s digit method as follows:

Year 1:

Depreciation expense = [Depreciation expense for year 1×Number of months depreciation expense incurredMonths in a year]=$120,000(3)×4 (September to December)12=$40,000

Year 2:

Depreciation expense = [[Depreciation expense for year 1×Number of months from January to AugustMonths in a year]+[Depreciation expense for year 2×Number of months from September to DecemberMonths in a year]]=[($120,000(3)

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