Spears Corporation bought a machine on January 1, 2011. In purchasing the machine, the company paid $50,000 cash and signed an interest-bearing note for $100,000. The estimated useful life of the machine is 5 years, after which time the salvage value is expected to be $15,000. The company uses the sum-of-the-years'-digits depreciation method. Given this information, how much depreciation expense would be recorded for the year ending December 31, 2012?

Question

Quizplus · Accepted Answer

To calculate depreciation expense using sum-of-the-years'-digits method, follow the below steps:
1. Find the ratio of the remaining useful life of the asset to the sum of the years' digits:
Remaining useful life/Sum of the years' digits
= (5-2+1)/(5+4+3+2+1)
= 4/15
2. Multiply the ratio by the depreciable cost of the asset to get the depreciation expense for the year:
Depreciation expense = (Depreciable cost - Salvage value) x Ratio
= ($150,000 - $15,000) x (4/15)
= $36,000

Therefore, the correct answer is C) $36,000.

Spears Corporation Bought a Machine on January 1, 2011