On April 1, 2009, Verlin Co.purchased new machinery for $240,000.The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method.The accumulated depreciation on this machinery at March 31, 2011, should be

Question

Quizplus · Accepted Answer

To calculate the sum-of-the-years'-digits method, we first add up the digits of the useful life: 5+4+3+2+1=15. Then we determine the depreciation expense for each year by taking the remaining useful life as a fraction of the total digits:

Year 1: 5/15 x $240,000 = $80,000
Year 2: 4/15 x $240,000 = $64,000
Year 3: 3/15 x $240,000 = $48,000
Year 4: 2/15 x $240,000 = $32,000
Year 5: 1/15 x $240,000 = $16,000

Total depreciation after 2 years (end of March 31, 2011) is $80,000 + $64,000 + $48,000 = $192,000. Therefore, accumulated depreciation at March 31, 2011 should be $192,000. Subtracting the depreciation for year 3 ($48,000) gives us a total accumulated depreciation of $144,000, which is option B.