Summer leisure Unlimited purchased a color laser printer for $1,194. Delivery costs totaled $47 and handling costs were $77. The useful life is 5 years and the salvage value is $298. Using the sum-of-the-years' digit depreciation method, calculate the book value at the end of year 2.

Question

Quizplus · Accepted Answer

The sum-of-the-years' digits method involves adding the years of the asset's useful life, then dividing each year's digit by this sum to determine that year's depreciation expense. For a 5-year useful life, the sum is 1+2+3+4+5 = 15. The cost of the printer is $1,194, with additional costs of $47 (delivery) and $77 (handling), totaling $1,318. Subtracting the salvage value of $298 gives a depreciable base of $1,020. For the first year, the fraction is 5/15, and for the second year, it's 4/15. After two years, 9/15 of the asset's cost has been depreciated. The book value at the end of year 2 is the initial cost minus the accumulated depreciation of the first two years. Calculating the depreciation for each year and subtracting from the total cost gives the book value at the end of year 2 as $706.

Summer Leisure Unlimited Purchased a Color Laser Printer for $1,194