Question

On January 1, 2014, Garden Company purchased a new machine for $2,800,000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $100,000. Depreciation was computed on the sum-of-the-years'-digits method. What amount should be shown in Garden's balance sheet at December 31, 2015, net of accumulated depreciation, for this machine?

Answer 1

As of December 31, 2015, the net amount, including accumulated depreciation, for Garden Company's machine should be $2,207,407.

Step-by-step explanation:

To calculate the accumulated depreciation using the sum-of-the-years'-digits method, we need to follow a specific formula. The formula for sum-of-the-years'-digits depreciation is:

Depreciation Expense =
`((n - x + 1))/((n \cdot (n + 1))/(2)) * \text{Cost} \]`

where n is the useful life of the asset in years, x is the current year, and Cost is the original cost of the asset.

For Garden Company's machine in 2015, with a useful life of 9 years and it being the second year (2015 - 2014 + 1), the formula becomes:

Depreciation Expense 2015 =
`((9 - 2 + 1))/((9 \cdot (9 + 1))/(2)) * \$2,800,000 \]`

Solving this gives the depreciation expense for 2015. To find the accumulated depreciation, we sum the depreciation expenses for each year up to 2015.

Accumulated Depreciation 2015=
`\text{Depreciation Expense}_(2014) + \text{Depreciation Expense}_(2015) \]`

Finally, subtracting the accumulated depreciation from the original cost gives us the net amount for the balance sheet:

Net Amount 2015 = Cost - Accumulated Depreciation(2015)

Plugging in the numbers, we find the net amount to be $2,207,407.