Question

I'm struggling to get my psi=2 to work out and I'm unsure how to use the Sum of Digits method.

AGEC 205: Agricultural Business Accounting Homework X8 Snyder and Thompson purchased a tractor for $12,000 on January 1, 2018. They expect to utilize the tractor for 8 years and subsequently dispose it for $2,000. Using the table on the next page, calculate annual depreciation expense and accumulated depreciation using the straight-line method, the sum-of-years-digits method, and the declining-balance method, and the double- declining balance method.

Answer 1

WORKING NOTES: 1
	CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD FOR TRACTOR
	Purchase Cost of Tractor	$                12,000.00
	Useful Life =	8 years
	Depreciation per year =	$                  1,500.00
	(Purchase price / Useful life)
	Rate of Depreciation =
	Rate of Depreciation = (1 / 8 Years )	0.125 or 12.50%	0.125
	(Depreication / Purchase price )
	Double decline deprection rate = 12.50% * 2 =	25.00%
	CALCULATION OF DEPRECIATION :
	Depreciation for the year 1 =
	Purchase Value =	$                12,000.00
	Depreciation @ 25% for the year 1	$                  3,000.00
	Closing balance of Year 1	$                  9,000.00
	Opening Balance of Year 2	$                  9,000.00
	Depreciation @ 25% for the year 2	$                  2,250.00
	Closing balance of Year 2	$                  6,750.00
	Opening Balance of Year 3	$                  6,750.00
	Depreciation @ 25% for the year 3	$                  1,687.50
	Closing balance of Year 3	$                  5,062.50
	Opening Balance of Year 4	$                  5,062.50
	Depreciation @ 25% for the year 4	$                  1,265.63
	Closing balance of Year 4	$                  3,796.88
	Opening Balance of Year 5	$                  3,796.88
	Depreciation @ 25% for the year 5	$                      949.22
	Closing balance of Year 5	$                  2,847.66
	Opening Balance of Year 6	$                  2,847.66
	Depreciation @ 25% for the year 6	$                      711.91
	Closing balance of Year 6	$                  2,135.74
	Opening Balance of Year 7	$                  2,135.74
	Depreciation @ 25% for the year 7	$                      533.94
	Closing balance of Year 7	$                  1,601.81
	Opening Balance of Year 8	$                  1,601.81
	Depreciation @ 25% for the year 8	$                      400.45
	Closing balance of Year 8	$                  1,201.35
WORKING NOTES: 2
	CALCULATION OF THE DEPRECIATION AS PER SUM OF DIGITS METHOD
	Purchase Cost of Machine	$                12,000.00
	Less: Salvage Value	$                  2,000.00
	Net Value for Depreciation	$                10,000.00	Units
			Per Units
	SUM OF DIGITS = 1+2+3+4+5+6+7+8 =36
	Depreciation for Year 1 = $ 10,000 X 8 /36 =	$                  2,222.22
	Depreciation for Year 2 = $ 10,000 X 7 /36 =	$                  1,944.44
	Depreciation for Year 3 = $ 10,000 X 6 /36 =	$                  1,666.67
	Depreciation for Year 4 = $ 10,000 X 5 /36 =	$                  1,388.89
	Depreciation for Year 5 = $ 10,000 X 4 /36 =	$                  1,111.11
	Depreciation for Year 6 = $ 10,000 X 3 /36 =	$                      833.33
	Depreciation for Year 7 = $ 10,000 X 2 /36 =	$                      555.56
	Depreciation for Year 8 = $ 10,000 X 1 /36 =	$                      277.78
ANSWER:
	SCHEDULE	DUBLDE DECLINE	Accumulated Depreciation	SUM OF YEAR DIGIT	Accumulated Depreciation
	Year 1	3,000.00	3,000.00	$                       2,222.22	$                  2,222.22
	Year 2	2,250.00	5,250.00	$                       1,944.44	$                  4,166.67
	Year 3	1,687.50	6,937.50	$                       1,666.67	$                  5,833.33
	Year 4	1,265.63	8,203.13	$                       1,388.89	$                  7,222.22
	Year 5	949.22	9,152.34	$                       1,111.11	$                  8,333.33
	Year 6	711.91	9,864.26	$                           833.33	$                  9,166.67
	Year 7	533.94	10,398.19	$                           555.56	$                  9,722.22
	Year 8	400.45	10,798.65	$                           277.78	$               10,000.00