Change in Depreciation Method
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, 2008, 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 |
|
2005 |
$45,000 |
|
2006 |
25,000 |
|
2007 |
30,000 |
1. Compute the depreciation taken by Modern Lighting during 2005, 2006, and 2007. Assume that all purchases were made at the beginning of the year.
2. Compute the amount of depreciation expense for 2005–2007, assuming the sum of the years’ digits had been used.
3. Compute the amount of depreciation expense for 2008.