Calculating Depreciation
A firm has a computer that originally cost $37,500 with an estimated salvage value of $17,500 and an estimated life of five years. During the first two years, the firm used straight-line (SL) depreciation. In the third year, the sum-of-the years’ digits (SYD) method was adopted.
Required
a. Calculate the depreciation expense during the first two years under each method.
b. What would have been the effect, before taxes, on the accounting equation if SYD had been used during the first two years instead of SL?
c. Describe the general principle that must be followed to account for the difference.
d. What depreciation expense will be shown in the third and each subsequent year, using SYD?
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