On January 1, 2021, Canseco Plumbing Fixtures purchased equipment for $40,000. Residual value at the end of an estimated 7 year service life is expected to be $
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Question
On January 1, 2021, Canseco Plumbing Fixtures purchased equipment for $40,000. Residual value at the end of an estimated 7 year service life is expected to be $12,000. The company expects the equipment to operate for 12,500 hours. Required: a. Calculate depreciation expense for 2021 and 2022 using sumoftheyears’digits assuming the equipment was purchased on January 1, 2021. b. Calculate depreciation expense for 2021 and 2022 using sumoftheyears’digits assuming the equipment was purchased on March 31, 2021.
1 Answer

1. User Answers Zviko
Answer:
Part a
2021 = $7,000
2022 = $6,000
Part b
2021 = $5,250
Explanation:
Sum of the year`s digit method provide for higher depreciation in early life of the asset with lower depreciation in later years.
Step 1
Some of digits calculation :
Year Digits
2021 7
2022 6
2023 5
2024 4
2025 3
2026 2
2027 1
Total 28
Step 2
Determine the depreciable amount
Depreciable amount = Cost  Residual value
= $40,000  $12,000
= $28,000
Step 3
Depreciation expense calculations
2021 = 7 / 28 x $28,000 = $7,000
2022 = 6/ 28 x $28,000 = $6,000
assuming the equipment was purchased on March 31, 2021
2021 = $7,000 x 9/12 = $5,250