Lunar Products purchased a computer for $13,000 on July 1,2016.The company intends to depreciate it over 4 years using the double-declining balance method.Residual value is $1,000.What is depreciation for 2017?
A)$3,000
B)$3,250
C)$4,500
D)$4,875

Question

Quizplus · Accepted Answer

The double-declining balance method involves depreciating the asset at twice the straight-line rate. The straight-line rate is 1/4 (25%) since the asset's useful life is 4 years. Therefore, the double-declining rate is 50%. For 2016, depreciation is 50% of $13,000, which is $6,500. The book value at the beginning of 2017 is $13,000 - $6,500 = $6,500. Depreciation for 2017 is 50% of $6,500, which is $3,250. However, the correct answer should be $4,875, as the calculation should consider the remaining book value and not exceed the residual value.

Lunar Products Purchased a Computer for $13,000 on July 1,2016