Lazer Incorporated purchased a delivery van for $29,000. Its useful life is estimated as 5 years, with a salvage value of $2,000. Using the sum-of-the-years' digits depreciation method, calculate the book value at the end of year 3.

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Quizplus · Accepted Answer

The sum-of-the-years' digits method involves adding the years of the asset's life (5+4+3+2+1 = 15). The total cost minus salvage value is $29,000 - $2,000 = $27,000. For year 3, the fraction is 3/15. Depreciation for year 1 is 5/15 of $27,000, year 2 is 4/15, and year 3 is 3/15. By year 3, 5/15 + 4/15 + 3/15 = 12/15 of the cost has been depreciated. This equals $27,000 * 12/15 = $21,600. The book value at the end of year 3 is the original cost minus accumulated depreciation: $29,000 - $21,600 = $7,400.

Lazer Incorporated Purchased a Delivery Van for $29,000