The Cardwell Company purchased a machine on January 2, 2014, 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, 2016, balance sheet for this machine?

Question

Quizplus · Accepted Answer

The sum-of-the-years'-digits method calculates depreciation based on the sum of the years of the asset's useful life. For an 8-year life, the sum is 36 (8+7+6+5+4+3+2+1). The depreciation for the first three years (2014, 2015, 2016) is calculated as follows:  - 2014: (8/36) * ($1,200,000 - $120,000) = $240,000  - 2015: (7/36) * ($1,200,000 - $120,000) = $210,000  - 2016: (6/36) * ($1,200,000 - $120,000) = $180,000  Total accumulated depreciation by the end of 2016 is $240,000 + $210,000 + $180,000 = $630,000.  The net book value is $1,200,000 - $630,000 = $570,000.

The Cardwell Company Purchased a Machine on January 2, 2014