A new piece of equipment costs $18,000 with a residual value of $600 and an estimated useful life of five years. Assuming twice the straight-line rate, the book value at the end of year 2 using the declining-balance method is:
A)$7,200
B)$6,480
C)$11,520
D)$18,000
E)None of these

Question

Quizplus · Accepted Answer

The declining balance method at twice the straight-line rate means using the double-declining balance (DDB) method. The straight-line depreciation rate is 1/5 (20%) per year, so the DDB rate is 40% per year. Year 1 depreciation: $18,000 * 40% = $7,200, leaving a book value of $10,800. Year 2 depreciation: $10,800 * 40% = $4,320, leaving a book value of $10,800 - $4,320 = $6,480.

A New Piece of Equipment Costs $18,000 with a Residual