On January 3, 2009, Munoz Co.purchased machinery.The machinery has an estimated useful life of eight years and an estimated residual value of $30,000.The depreciation applicable to this machinery was $65,000 for 2011, computed by the sum-of-the-years'-digits method.The acquisition cost of the machinery was

Question

Quizplus · Accepted Answer

The sum-of-the-years'-digits method for an 8-year life has a denominator of 36 (1+2+3+4+5+6+7+8). For 2011, the third year, the fraction is 6/36. The depreciation for 2011 is $65,000, so the depreciable base is $65,000 / (6/36) = $390,000. Adding the residual value of $30,000 gives an acquisition cost of $420,000.