Tidy Limited purchased a new van on January 1,2018.The van cost $20,000.It has an estimated life of five years and the estimated residual value is $5,000.Tidy uses the double-declining-balance method to compute depreciation. What is the adjusted balance in the Accumulated Depreciation account at the end of 2019?
A)$3,200
B)$4,800
C)$9,600
D)$12,800

Question

Quizplus · Accepted Answer

Keep the estimated residual value of $5,000 in mind;book value cannot drop below residual value.
Depreciation expense = Book value × (2 ÷ Useful life)
Depreciation expense = (Cost − Accumulated depreciation)× (2 ÷ Useful life)
2018:
= ($20,000 − $0)× 2 / 5 = $8,000
2019:
= ($20,000 − $8,000)× 2 / 5 = $4,800
Book value at end of 2019 = $20,000 − ($8,000 + $4,800)= $7,200,which is greater than the $5,000 residual value.As such,the amount calculated is the amount of depreciation that can be taken.
Accumulated Depreciation at end of 2019 = 2018 Depreciation + 2019 Depreciation
= $8,000 + $4,800 = $12,800

Tidy Limited Purchased a New Van on January 1,2018