Straight-Line, Decdining-Balance, and Sum-of-the-Years-Digits Methods A light tr

Question

Straight-Line, Decdining-Balance, and Sum-of-the-Years-Digits Methods A light truck is purchased on January 1 at a cost of $29,060. It is expected to serve for eight years and have a salvage value of $4,420. Calculate the depreciation expense for the first and third years of the truck's life using the following methods. If required, round your answers to the nearest cent. Depreciation Expense Year 1 Year 3 3,080 | S( 3,080 | 1. Straight-line 2. Double-declining-balance 3. Sum-of-the-years-digits

Explanation / Answer

Depreciation under Straight line method = (cost - salvage value) / estimated useful life

= (29,060 - 4,420) / 8 = 3,080

Depreciation under Double declining balance method = (cost - accumulated depreciation) / useful life * 2  

Year 1 = (29,060 - 0) / 8 * 2 = 7,265

Year 2 = (29,060 - 7,265) / 8 * 2 = 5,449

Year 3 = [29,060 - 12,714(7,265+5,449)] / 8 * 2 = 4,087

Depreciation under sum of years digits method = (cost - salvage value) * sum of years left / n(n+1)/2

n(n+1)/2 = 8(8+1)/2 = 36

Year 1 = (29,060 - 4,420) * 8 / 36 = 5,476

Year 2 = (29,060 - 4,420) * 7 / 36 = 4,791

Year 3 = (29,060 - 4,420) * 6 / 36 = 4,107

Year 1 Year 3 1. Straight line 3,080 3,080 2. Double declining balance 7,265 4,087 3. Sum of years digits 5,476 4,107

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