On January 1,2012,Costas Co.purchased a new machine for $1,250,000.The new machine has an estimated useful life of five years and the salvage value was estimated to be $250,000.Costas uses the sum-of-the-years'-digits method of depreciation.The amount of depreciation expense for 2014 is
A) $200,000.
B) $250,000.
C) $300,000
D) $416,667

Question

Quizplus · Accepted Answer

The sum-of-the-years'-digits method involves calculating the sum of the digits for the years of the asset's useful life (5+4+3+2+1=15). For 2014, the third year, the fraction is 3/15. The depreciable base is $1,250,000 - $250,000 = $1,000,000. Therefore, the depreciation expense for 2014 is (3/15) * $1,000,000 = $200,000.