11. A piece of equipment is purchased for $110,000 and has an estimated salvage value of $10,000 at the end of the recovery period. Make a depreciation schedule for the piece of equipment using the sum-of-the-years method with a recovery period of seven years.

12. A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the end of the recovery period. Make a depreciation schedule for the piece of equipment using the sum-of-the-years method with a recovery period of five years.

SUM OF YEARS METHOD

I've attached the textbook pages for help, as I am confused. But I will also attach the format for the schedule for reference.

SUM-OF-THE-YEARS METHOD The sum-of-the-years (SOY) method is used to accelerate the depreciation of an asset. The annual depreciation rate is calcu- lated by dividing the number of years left in the recovery period by the sum of the years in the recovery period as follows: (N - m + 1) (5-6) SOY where SOY = N+ (N - 1) + ... + 2+1 N(N + 1) SOY = (5-7) 2 With the sum-of-the-years method the annual depreci- ation is calculated by taking the purchase price less the sal- vage value of the equipment and multiplying the resultant by the annual depreciation rate as follows: Dm = (P - F)Rm (5-8) By substituting Eq. (5-6) into Eq. (5-8) we get the following: (N - m + 1) Dm = (P - F)- (5-9) SOY The book value for the end of year m is calculated as follows: BVm = P - (P - Fm( N- m/2 + 0.5) (5-10) SOYExample 5-2: A dump truck is purchased for $110,000 SIDEBAR 5-1 and has an estimated salvage value of $10,000 at the end Calculating Straight-Line Depreciation Using Excel of the recovery period. Prepare a depreciation schedule for the dump truck using the sum-of-the-years method with a Example 5-1 may be set up in a spreadsheet as shown in the recovery period of five years. following figure: Solution: The sum of the years is calculated using Eq. (5-7) A B C as follows: Purchase Price ($) 110,000 Salvage Value ($) 10,000 SOY = 5(5 + 1) 15 Recovery Period (yrs) 5 2 m Dm ($) BVm ($) The annual depreciation rate for the first year is calculated 0 110,000 using Eq. (5-6) as follows: 20,000 90,000 2 20,000 70,000 R, = (5 - 1 + 1) 5 3 20,000 50.000 15 15 10 20,000 30,000 11 20,000 10,000 The annual depreciation for the first year is calculated using Eq. (5-8) as follows: The following formulas, text, and values will need to be entered into the spreadsheet: D1 = ($110,000 - $10,000)-= = $33,333 B Purchase Price ($) 110,000 The book value at the end of the first year is calculated using Salvage Value ($) 10,000 Eq. (5-11) as follows: Recovery Period (yrs) 5 BV1 = $110,000 - $33,333 = $76,667 Dm ($) BVm ($) =C1 The annual depreciation rate for the second year is calculat- 1 =SLN($C$1,$C$2,$C$3) =C6-B7 =SLN($C$1,$C$2,$C$3) =C7-B8 ed using Eq. (5-6) as follows: WN =SLN($C$1,$C$2,$C$3) =C8-B9 4 =SLN($C$1,$C$2,$C$3) =C9-B10 R2 = - (5- 2+1) 4 11 =SLN($C$1,$C$2,$C$3) =C10-B11 15 15 The annual depreciation for the second year is calculated This spreadsheet is designed for a five-year recovery period using Eq. (5-8) as follows: using the SLN function to calculate the straight-line depreciation of an asset. The SLN function is written as = SLN(cost,salvage,life) D2 = ($110,000 - $10,000)45 = $26,667 where cost = purchase price of the asset The book value at the end of the second year is calculated salvage = salvage value of the asset at the end of the using Eq. (5-11) as follows: recovery period life = recovery period in years BV2 = $76,667 - $26,667 = $50,000 The cells containing the purchase price, salvage value, and re- covery period are written as an absolute reference by placing the The remaining years are calculated in a similar manner. dollar sign ($) in front of both the row and the column reference. The depreciation schedule for Example 5-2 is shown in This allows cell B7 to be copied to cells B8 through B11 without Table 5-2. changing the formula. See Appendix B for more information on absolute references. Table 5-2 Depreciation Schedule for Example 5-2 Rm Dm ($) BVm ($) 110,000 When preparing a depreciation table, it is often easier 5/15 33,333 76,667 to subtract the annual depreciation from the previous year's 4/15 26,667 50,000 UA W N - book value using the following equation: 3/15 20,000 30,000 2/15 13,333 16,667 BVm = BVm-1 - Dm (5-11) 1/15 6,667 10,000SIDEBAR 5-2 Calculating Sum-of-the-Years Depreciation Using Excel Example 5-2 may be set up in a spreadsheet as shown in the following figure: A B C Purchase Price ($) 110,000 N Salvage Value ($) 10,000 3 Recovery Period (yrs) 5 m Dm ($) BVm ($) 0 110,000 33,333 76.667 2 26.667 50,000 9 20,000 30,000 10 13,333 16,667 11 6.667 10,000 The following formulas, text, and values will need to be entered into the spreadsheet: A B C Purchase Price ($) 110,000 Salvage Value ($) 10,000 Recovery Period (yrs) 5 m Dm ($) BVm ($) =C1 =SYD($C$1,$C$2,$C$3,A7) =C6-87 UN -O =SYD(SC$1,$C$2,$C$3,AB) =C7-88 =SYD($C$1,$C$2,$C$3,A9) =C8-89 =SYD(SC$1,$C$2,$C$3,A10) =C9-810 5 -SYD(SC$1,$C$2,$C$3,A11) =C10-811 This spreadsheet is designed for a five-year recovery period using the SYD function to calculate the sum-of-the-years de- preciation of an asset for a given period. The SYD function is written as = SYD(cost,salvage,life,per) where cost = purchase price of the asset salvage = salvage value of the asset at the end of the recovery period life = recovery period in years per = year for which depreciation is being calculated The cells containing the purchase price, salvage value, and re- covery period are written as an absolute reference by placing the dollar sign ($) in front of both the row and the column reference. This allows cell B7 to be copied to cells B8 through B11 without changing the formula. See Appendix B for more information on absolute references