Fields Company purchased equipment on January 1 for $180,000.This system has a useful life of 8 years and a salvage value of $20,000.The company estimates that the equipment will produce 40,000 units over its 8-year useful life.Actual units produced are: Year 1 - 4,000 units; Year 2 - 6,000 units; Year 3 - 8,000 units; Year 4 - 5,000 units; Year 5 - 4,000 units; Year 6 - 5,000 units; Year 7 - 7,000 units; Year 8 - 3,000 units.What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?
A)$20,000.
B)$45,000.
C)$33,750.
D)$16,000.
E)$24,000.

Question

Quizplus · Accepted Answer

To calculate the depreciation expense using the double-declining-balance method, we need to follow these steps:

1. Calculate the straight-line depreciation rate:

Straight-line depreciation rate = 1 / Useful life = 1 / 8 = 0.125 or 12.5%

2. Calculate the double-declining-balance depreciation rate:

Double-declining-balance depreciation rate = Straight-line depreciation rate x 2 = 0.125 x 2 = 0.25 or 25%

3. Calculate the depreciation expense for the second year:

Depreciation expense = Beginning book value x Double-declining-balance depreciation rate

To calculate the beginning book value for the second year, we need to subtract the accumulated depreciation for the first year from the original cost:

Beginning book value = Original cost - Accumulated depreciation for first year

Accumulated depreciation for first year = Straight-line depreciation rate x Year 1 production

Accumulated depreciation for first year = 0.125 x 4,000 = $500

Beginning book value = $180,000 - $500 = $179,500

Depreciation expense for second year = $179,500 x 0.25 = $44,875

Therefore, the answer is C) $33,750.

Fields Company Purchased Equipment on January 1 for $180,000