A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double declining-balance method?
A) $17,500
B) $37,500
C) $18,750
D) $16,667

Question

Quizplus · Accepted Answer

The double-declining balance method doubles the straight-line rate, and then applies that rate to the net book value each year. 
Straight-line rate = 1/4 = 0.25 (since the asset has an estimated life of 4 years)
Double declining rate = 2 * 0.25 = 0.5
In the second year, the net book value = cost - accumulated depreciation
Year 1 accumulated depreciation = cost * double declining rate = $75,000 * 0.5 = $37,500
Net book value at the beginning of Year 2 = $75,000 - $37,500 = $37,500
Depreciation expense in Year 2 = net book value at beginning of year * double declining rate = $37,500 * 0.5 = $18,750 
Therefore, the correct answer is C) $18,750.

A Machine with a Cost of $75,000 Has an Estimated