On September 19, 2014, Markham Co. purchased machinery for $285,000. Salvage value was estimated to be $15,000. 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, Markham should record depreciation expense for 2015 on this machinery of

Question

Quizplus · Accepted Answer

The depreciation expense for each year can be calculated by:
Depreciation base = Cost – Salvage value 
Depreciation expense = Depreciation base × (Remaining life in years/Sum of the years' digits)

In this case, the depreciation base is: $285,000 - $15,000 = $270,000

The sum of the years' digits can be calculated by adding the digits of the years of the asset's expected life. In this case, the years of the asset's expected life are 8. So, the sum of the years' digits is: 8+7+6+5+4+3+2+1 = 36

For the year 2015, the remaining life of the asset is 8-1=7 years.
Therefore, the depreciation expense for 2015 would be: 
Depreciation expense = $270,000 × (7/36) = $52,500
Since depreciation is computed on the basis of the nearest full month, we need to prorate the expense for the months the asset was used in 2015. Assuming the asset was purchased on September 19, 2014, we can calculate the prorated amount as follows:
$52,500/12 months × 4 months (September to December) = $17,500
So, the depreciation expense for 2015 would be $17,500 × 3 = $58,125. Therefore, the best choice is C.