Equipment purchased at the beginning of the year for $200,000 with a residual value of $20,000 is being depreciated over a 5-year period using the double-declining-balance method. Which of the following statements is correct concerning the financial statements at the end of the year?
A)The equipment account now has a balance of $120,000.
B)The book value of the equipment is now $80,000.
C)The accumulated depreciation account balance is now $80,000.
D)Depreciation expense for the year is $72,000.

Question

Quizplus · Accepted Answer

The accumulated depreciation account balance is now $80,000.The double-declining-balance method of depreciation results in a constant depreciation rate over the asset's useful life. The depreciation rate is twice the straight-line depreciation rate. In this case, the straight-line depreciation rate would be 10% ($200,000 - $20,000) / 5 years = $36,000. The double-declining-balance depreciation rate is therefore 20% ($36,000 x 2).The depreciation expense for the year is therefore $40,000 ($200,000 x 20%). The accumulated depreciation account balance at the end of the year is therefore $80,000 ($40,000 x 2).

Equipment Purchased at the Beginning of the Year for $200,000