On January 1, 2011, Carson Company purchased equipment at a cost of $420,000. The equipment was estimated to have a useful life of five years and a salvage value of $60,000. Carson uses the sum-of-the-years'-digits method of depreciation. What should the accumulated depreciation be at December 31, 2014?
A) $240,000
B) $288,000
C) $336,000
D) $360,000

Question

Quizplus · Accepted Answer

To calculate depreciation using the sum-of-the-years'-digits method, we first need to determine the total number of years of useful life. In this case, the equipment has a useful life of five years, so we add the digits 5 + 4 + 3 + 2 + 1 = 15.

Next, we calculate the depreciation rate for each year by dividing the number of years remaining in the useful life by the sum of the years' digits. For example, in year 1, the depreciation rate would be 5/15 or 1/3.

Using this method, we can determine the annual depreciation expense for each year:

Year 1: ($420,000 - $60,000) × 1/3 = $120,000 
Year 2: ($420,000 - $60,000) × 2/15 = $64,000 
Year 3: ($420,000 - $60,000) × 3/15 = $96,000 
Year 4: ($420,000 - $60,000) × 4/15 = $128,000 
Year 5: ($420,000 - $60,000) × 5/15 = $168,000

To find the accumulated depreciation at the end of year 4 (December 31, 2014), we add up the depreciation expense for each year from year 1 to year 4:

Accumulated depreciation = $120,000 + $64,000 + $96,000 + $128,000 
= $408,000

However, we are only interested in the accumulated depreciation for December 31, 2014, which is the end of year 4. Therefore, we subtract the depreciation expense for year 5 from the above amount:

Accumulated depreciation at December 31, 2014 = $408,000 - $168,000 
= $240,000

Therefore, the correct answer is C) $336,000.

On January 1, 2011, Carson Company Purchased Equipment at a Cost