Question

Hightower Company acquired an asset on January 2, 2019, at a cost of $154,000. The asset’s useful life is four years and its salvage value is $52,000. Compute the depreciation expense for each of the first two years, using the straight-line method, the double-declining-balance method, and the sum-of-the-years’-digits method.

Compute the depreciation expense for the first two years, using the straight-line method.

	STRAIGHT-LINE METHOD Year Acquisition Cost Salvage Value Useful Life Depreciation Accumulated Depreciation 1 years 2 years

	DOUBLE-DECLINING-BALANCE METHOD Year Beginning Book Value Rate Depreciation Accumulated Depreciation 1 % 2 %

	SUM-OF-THE-YEARS’-DIGITS METHOD Year Fraction Cost Less Salvage Depreciation Accumulated Depreciation 1 / 2 /

Answer 1

Answer STRAIGHT-LINE METHOD Year Acquisition Cost Salvage Value $154,000 $52,000 Useful life Depreciation ($154,000 - $52,000) / 4 years = $25,500 Accumulated Depreciation $25,500 4 years 2 $154,000 $52,000 4 years ($154,000 - $52,000) / 4 years = $25,500 $25,500 + $25,500 = $51,000 DOUBLE-DECLINING-BALANCE METHOD Year Beginning Book Value $154,000 $154,000 - $77,000 = $77,000 Rate 50% Depreciation $154,000 x 50% = Accumulated Depreciation $77,000 $77,000 50% $77,000 x 50% = $38,500 $77,000+ $38,500 = $115,500 Explanations Rate of Double Declining Method = (100%/4) x 2 = 50% or 2/useful life = 2/4 = 50% SUM-OF-THE-YEARS'-DIGITS METHOD Years Fraction Cost Less Salvage 4/10 $154,000 - $52,000 = $102,000 3/10 $154,000 - $52,000 = $102,000 Depreciation $102,000 X 4/10 = $102,000 x 3/10 = $40,800 $30,600 Accumulated Depreciation $40,800 $40,800 + $30,600 = $71,400 Explanations Calculation of Fraction Fraction for year 1 = 4/(4 + 3 + 2 + 1) = 4/10 Fraction for year 2 = 3/(4 + 3 + 2 + 1) = 3/10