On January 1, a machine with a useful life of five years and a residual value of $40,000 was purchased for $120,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?
A) $28,800.
B) $48,000.
C) $38,400.
D) $23,040.

Question

Quizplus · Accepted Answer

The double-declining-balance method of depreciation results in a higher depreciation expense in the early years of an asset's life. The depreciation rate is twice the straight-line depreciation rate. The straight-line depreciation rate is calculated by dividing the depreciable cost of the asset by its useful life. The depreciable cost of the asset is the cost of the asset minus its residual value.In this case, the depreciable cost of the asset is $120,000 - $40,000 = $80,000. The straight-line depreciation rate is 1/5 = 20%. The double-declining-balance depreciation rate is 2 * 20% = 40%.The depreciation expense for year 2 is $80,000 * 40% = $32,000. However, the depreciation expense cannot exceed the book value of the asset. The book value of the asset is the cost of the asset minus the accumulated depreciation. The accumulated depreciation at the end of year 1 is $28,800. Therefore, the depreciation expense for year 2 is $32,000 - $28,800 = $3,200.

On January 1, a Machine with a Useful Life of Five