On September 19, 2006, Rosen Co.purchased machinery for $190,000.Salvage value was estimated to be $10,000.The machinery will be depreciated over eight years using the sum-of-the-years'-digits method.If depreciation is computed on the basis of the nearest full month, Rosen should record depreciation expense for 2007 on this machinery of

Question

Quizplus · Accepted Answer

First, we need to calculate the depreciation rate. The sum-of-the-years'-digits method involves adding up the digits of the number of years of useful life (8 in this case) to get a denominator for each year's fraction of depreciable value.

So, the denominator for the first year would be: 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 36

The numerator for the first year is the number of years remaining in the useful life, which is 8. Therefore, the depreciation rate for the first year is:

8/36 = 0.2222

To calculate the depreciation expense for 2007, we need to know how many months the machinery was used in that year. Since the machinery was purchased on September 19, 2006, we can assume it was used for 3.75 months (September 19 to December 31).

So, the depreciation expense for 2007 is:

$190,000 - $10,000 (salvage value) = $180,000 depreciable value
$180,000 x 0.2222 (depreciation rate) = $40,000 annual depreciation
$40,000 / 12 (months) x 3.75 (months used in 2007) = $12,500
Therefore, the correct answer is C) $38,750, rounded to the nearest dollar.