One of the methods that the Internal Revenue Service allows for computing depreciation of certain business property is the sum-of-the-years'-digits method. If a property valued at C dollars has an estimated useful life of N years and a salvage value of S dollars, then the amount of depreciation Dn allowed during the nth year is given by where S_N is the sum of the first N positive integers representing the estimated useful life of the property. Thus, If office furniture worth $7,300 is to be depreciated by this method over N = 11 years and the salvage value of the furniture is $700, find the depreciation for the third year by computing D₃ . A) $2,700 B) $900 C) $700 D) $450

Question

Quizplus · Accepted Answer

First, we need to compute the S_N, which is the sum of the digits from 1 to 11: S_N = (11 + 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1) = 66 Next, we use the formula to compute the depreciation for the third year: D3 = (11-3+1)/66 × (C - S) = 9/66 × (7,300 - 700) = $900 Therefore, the depreciation for the third year is $900. Option B is the correct answer.

One of the Methods That the Internal Revenue Service Allows