The Cardwell Company purchased a machine on January 2, 2016, at a cost of $1,200,000. The machine had an estimated useful life of eight years and a residual value of $120,000. Cardwell computes depreciation by the sum-of- the-years'-digits method. What amount, net of accumulated depreciation will appear on the company's December 31, 2018, balance sheet 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 useful life and then dividing each year's depreciation by this sum. For an 8-year useful life, the sum is 1+2+3+4+5+6+7+8 = 36. The depreciation for each year is a fraction of the depreciable base ($1,200,000 - $120,000 = $1,080,000), with the numerator being the remaining life of the asset and the denominator being the sum of the years' digits (36). For the first three years, the fractions are 8/36, 7/36, and 6/36, respectively. The total depreciation over three years is $1,080,000 * (8/36 + 7/36 + 6/36) = $630,000. The net book value at the end of 2018 is the original cost minus accumulated depreciation: $1,200,000 - $630,000 = $570,000.

The Cardwell Company Purchased a Machine on January 2, 2016