On January 1, 2009, McMahan Company purchased equipment at a cost of $420,000. The equipment was estimated to have a useful life of 5 years and a salvage value of $60,000. McMahan uses the sum-of-the-years'-digits method of depreciation. What should the accumulated depreciation be at December 31, 2012?

Question

Quizplus · Accepted Answer

The depreciable cost of the equipment is the cost minus the salvage value, which is $420,000 - $60,000 = $360,000.
The sum-of-the-years'-digits method of depreciation involves adding up the digits for the remaining useful life of the asset and using that fraction to determine the amount of depreciation charged in each year. For a 5-year asset, the digits are 5+4+3+2+1=15.
For 2009, the fraction is 5/15, for 2010 it is 4/15, for 2011 it is 3/15, and for 2012 it is 2/15.
Therefore, the accumulated depreciation at the end of 2012 is:
($360,000) x (5/15 + 4/15 + 3/15 + 2/15) = $336,000. 
So, the correct option is C.

On January 1, 2009, McMahan Company Purchased Equipment at a Cost