On April 1, 2005, Reiley Co.purchased new machinery for $240,000.The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method.The accumulated depreciation on this machinery at March 31, 2007, should be

Question

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To compute depreciation using the sum-of-the-years'-digits method, you will first need to calculate the denominator of the fraction. This is done by adding the number of years in the asset's useful life (5) and then summing the digits (5+4+3+2+1=15). So the denominator is equal to 15.

To calculate the numerator for year 1, you subtract the number of years the asset has been used (0) from the denominator (15). So the numerator for year 1 is equal to 15.

To calculate the numerator for year 2, you subtract the number of years the asset has been used (1) from the denominator (15). So the numerator for year 2 is equal to 14.

To calculate the amount of depreciation for year 1, you take the fraction 15/15 and multiply it by the cost of the asset ($240,000). This gives you $240,000 in depreciation for year 1.

To calculate the amount of depreciation for year 2, you take the fraction 14/15 and multiply it by the cost of the asset ($240,000). This gives you $224,000 in depreciation for year 2.

The accumulated depreciation for the first two years is equal to the sum of the depreciation for year 1 and year 2. This is equal to $240,000 + $224,000 = $464,000.

Therefore, the accumulated depreciation at March 31, 2007 (which is two years after the asset was purchased) is equal to $464,000. However, we need to subtract the depreciation for year 3 since we are looking for the accumulated depreciation at the end of year 2. The depreciation for year 3 is equal to $192,000. So the accumulated depreciation at March 31, 2007 is equal to $464,000 - $192,000 = $272,000.

The closest answer choice to this is B) $144,000, which is incorrect. The correct answer is $272,000.