Ferrott Company purchased a machine that was installed and placed in service on January 2, 2011, at a total cost of $480,000. Salvage value was estimated at $80,000. The machine is being depreciated over ten years by the double-declining-balance method. For the year 2012, Ferrott should record depreciation expense of

Question

Quizplus · Accepted Answer

The double-declining-balance method is calculated by taking the straight-line rate (1/10 = 0.10) and doubling it (0.10 x 2 = 0.20) to get the annual depreciation rate of 20%.

In the first year, the depreciation expense would be calculated as follows: 
$480,000 (cost) - $80,000 (salvage value) = $400,000 (depreciable base) 
$400,000 x 20% = $80,000

For the second year, the calculation is based on the remaining depreciable base: 
$480,000 (cost) - $80,000 (salvage value) - $80,000 (depreciation expense from year 1) = $320,000 (depreciable base) 
$320,000 x 20% = $64,000

Therefore, the answer is B) $76,800 ($80,000 depreciation expense from year 1 + $64,000 depreciation expense from year 2).

Ferrott Company Purchased a Machine That Was Installed and Placed