On January 1, 2008, Forrest Company purchased equipment at a cost of $130,000. The equipment was estimated to have a salvage value of $4,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2015?

Question

Quizplus · Accepted Answer

The sum-of-the-years'-digits method involves calculating depreciation based on a fraction where the numerator is the remaining life of the asset and the denominator is the sum of the years' digits. For an 8-year life, the sum of the years' digits is 36 (1+2+3+4+5+6+7+8). By 2015, the equipment is in its 8th year, so the fraction is 1/36. The depreciable amount is $126,000 ($130,000 - $4,000). Therefore, the depreciation for 2015 is $126,000 * (1/36) = $3,500.

On January 1, 2008, Forrest Company Purchased Equipment at a Cost