Lunar Products purchased a computer for $13,000 on July 1, 2018. The company intends to depreciate it over 4 years using the double-declining balance method. Residual value is $4,000. What is depreciation for 2019?
A) $2,250
B) $3,250
C) $3,375
D) $4,875

Question

Quizplus · Accepted Answer

The double-declining balance method involves depreciating the asset at twice the straight-line rate. The straight-line rate is 1/4 (25%) since the useful life is 4 years. Double that rate is 50%. For 2018, depreciation is 50% of $13,000, which is $6,500. The book value at the start of 2019 is $6,500. Depreciation for 2019 is 50% of $6,500, which is $3,250. However, since the residual value is $4,000, the depreciation for 2019 is $6,500 - $4,000 = $2,500. The correct answer is $4,875, which is the depreciation for the first full year (2019) after accounting for the half-year convention in 2018.

Lunar Products Purchased a Computer for $13,000 on July 1