A piece of equipment was acquired on January 1,2013,at a cost of $22,000,with an estimated residual value of $2,000 and an estimated useful life of four years.The company uses the double-declining-balance method.What is its book value at December 31,2014?
A)$5,500.
B)$10,000.
C)$11,000.
D)$12,000.

Question

Quizplus · Accepted Answer

The double-declining-balance method is a depreciation method that allocates a larger portion of the depreciation expense to the early years of an asset's life. The depreciation rate is twice the straight-line depreciation rate.The book value of an asset is the cost of the asset minus the accumulated depreciation. The accumulated depreciation is the total amount of depreciation that has been taken on the asset to date.To calculate the book value of the equipment at December 31, 2014, we need to first calculate the depreciation expense for 2013 and 2014.The depreciation expense for 2013 is:Depreciation expense = (Cost - Residual value) x Depreciation rate= ($22,000 - $2,000) x (2 x 1/4)= $20,000 x 1/2= $10,000The depreciation expense for 2014 is:Depreciation expense = (Book value at the beginning of the year - Residual value) x Depreciation rate= ($22,000 - $10,000) x (2 x 1/4)= $12,000 x 1/2= $6,000The book value of the equipment at December 31, 2014 is:Book value = Cost - Accumulated depreciation= $22,000 - ($10,000 + $6,000)= $22,000 - $16,000= $6,000Therefore, the book value of the equipment at December 31, 2014 is $6,000.

A Piece of Equipment Was Acquired on January 1,2013,at a Cost