Modern Lighting Inc. has in the past depreciated its computer hardware using the straight-line method, assuming a
Question:
Modern Lighting Inc. has in the past depreciated its computer hardware using the straight-line method, assuming a 10% salvage value and an expected useful life of five years. As a result of the rapid obsolescence associated with the computer industry, Modern Lighting has determined that it receives most of the benefit from its computer systems in the first few years of ownership. Therefore, as of January 1, 2011, Modern Lighting proposes changing to the sum-of-the-years’-digits method for depreciating its computer hardware. The following information is available regarding all of Modern Lighting’s computer purchases:
Cost
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,000
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
1. Compute the depreciation taken by Modern Lighting during 2008, 2009, and 2010. Assume that all purchases were made at the beginning of the year.
2. Compute the amount of depreciation expense for 2008–2010, assuming the sum-of-the-years’-digits had been used.
3. Compute the amount of depreciation expense for 2011.
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen