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14 August, 06:33

On January 1, 2012, Graham 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 Graham's balance sheet at December 31, 2013, net of accumulated depreciation, for this machine?

a. $2,260,000

b. $1,780,000

c. $1,742,221

d. $1,659,000

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Answers (1)
  1. 14 August, 07:42
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    Depreciable amount = Cost - Salvage value

    = $2,800,000 - $100,000

    = $2,700,000

    Year Digits Depreciation per annum

    2012 9 9/45 x $2,700,000 = $540,000

    2013 8 8/45 x $2,700,000 = $480,000

    Accumulated depreciation = $1,020,000

    The amount to be shown in balance sheet at December 31, 2013

    = Cost - Accumulated depreciation

    = $2,800,000 - $1,020,000

    = $1,780,000

    The correct answer is B

    Explanation:

    In this case, we need to calculate the depreciable amount, which is cost less salvage value. Then we will calculate the depreciation for 2012 and 2013. A digit of 9 is assigned to 2012 and a digit of 8 is assigned to 2013 based on sum-of-the-year-digits method. The depreciation for 2012 is calculated as 9/45 of the depreciable amount and the depreciation for 2013 is calculated as 8/45 of the depreciable amount. The total digits for 9 years is calculated as 1+2+3+4+5+6+7+8+9 = 45.

    The amount to be disclosed in balance sheet equals cost minus accumulated depreciation for 2012 and 2013.
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