Exhibit 11-1 On January 1, 2010, Hills purchased equipment for $200, 000.The equipment had an estimated useful life of ten years and an estimated residual value of $40, 000.Use the double-declining-balance method to answer the following question(s).
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Refer to Exhibit 11-1.How much depreciation should Hills record on the asset in 2011?

Question

Quizplus · Accepted Answer

The double-declining-balance method uses a depreciation rate of twice the straight-line rate, which in this case is 20% (200% / 10 years). Therefore, the depreciation expense for the asset in 2011 would be calculated as follows:
Book value at beginning of year 2 = $200,000 - $40,000 (residual value) - $40,000 (depreciation expense in year 1) = $120,000
Depreciation expense in year 2 = $120,000 x 20% (double the straight-line rate) = $24,000 
However, the double-declining-balance method does not take into account residual value, so the depreciation expense is limited to the book value at the end of its useful life. Therefore, the depreciation expense in 2011 would be the lesser of $24,000 or ($200,000 - $40,000) / 10 years = $16,000. Thus, the answer is C.

Exhibit 11-1 on January 1, 2010, Hills Purchased Equipment for $200