Cranberry Inc. purchased a piece of equipment on April 1, 2016 for $140,000. The
ID: 2571811 • Letter: C
Question
Cranberry Inc. purchased a piece of equipment on April 1, 2016 for $140,000. The equipment has a residual value of 20,000 and an estimated useful life of 5 years. Cranberry uses the sum-of-the-years digits to record depreciation expense on this equipment. (a) How much is the depreciation expense in 2018? b)What is the balance in the Cranberry’s Accumulated Depreciation account for the equipment after recording depreciation expense in 2018? c)What is the carrying value that Cranberry will report on the Balance Sheet for the equipment in 2018?
Explanation / Answer
Answer:
Cost
$140,000
Salvage Value
$20,000
Useful Life in Years
5
Asset is Depreciated
Yearly
Sum of the Years' Digits = 1 + 2 + 3 + 4 +5 = 15
Depreciable Base = $140,000 $20,000 = $120,000
As it was given in the question that Cranberry Inc. purchased a piece of equipment on April 1, 2016 so in the year 2016 April to December depreciation will be calculated
Year
Period
Deprecation
calculation
Deprecation
2016
April 1 - Dec-31
(120,000*5/15)*9/12
30000
Total
30000
2017
Jan 1- March31
(120,000*5/15)*3/12
10000
April 1 - Dec-31
(120,000*4/15)*9/12
24000
Total
34000
2018
Jan 1- March31
(120,000*4/15)*3/12
8000
April 1 - Dec-31
(120,000*3/15)*9/12
18000
Total
26000
2019
Jan 1- March31
(120,000*3/15)*3/12
6000
Year
Depreciation
Accumulated
depreciation
Net
book
value
2016
30000
30000
120000
2017
34000
64000
86000
2018
26000
90000
60000
(a) How much is the depreciation expense in 2018?
Answer: $26,000
b)What is the balance in the Cranberry’s Accumulated Depreciation account for the equipment after recording depreciation expense in 2018?
Answer: $90,000
c)What is the carrying value that Cranberry will report on the Balance Sheet for the equipment in 2018?
Answer: $60,000
Cost
$140,000
Salvage Value
$20,000
Useful Life in Years
5
Asset is Depreciated
Yearly