On January 1, 2014, Garden Company purchased a new machine for $2,800,000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $100,000. Depreciation was computed on the sum-of-the-years'-digits method. What amount should be shown in Garden's balance sheet at December 31, 2015, net of accumulated depreciation, for this machine?

Question

Quizplus · Accepted Answer

The sum-of-the-years'-digits method involves calculating the sum of the years of the asset's life and then depreciating the asset based on its remaining life each year. For a 9-year life asset, the sum is 1+2+3+4+5+6+7+8+9 = 45. The depreciation for each year is a fraction of the depreciable base ($2,800,000 - $100,000 = $2,700,000), with the numerator being the remaining life of the asset and the denominator being the sum of the years' digits (45).For the first year, the depreciation expense is (9/45) * $2,700,000 = $540,000.For the second year, it's (8/45) * $2,700,000 = $480,000.Total depreciation over two years is $540,000 + $480,000 = $1,020,000.The net book value at December 31, 2015, is the original cost minus accumulated depreciation: $2,800,000 - $1,020,000 = $1,780,000.

On January 1, 2014, Garden Company Purchased a New Machine