JoyCo acquired equipment on April 1,2022,at a cost of $90,000 and with an estimated useful life of 10 years.The machine has a residual value of $10,000.JoyCo uses the double-declining-balance method of depreciation.How much depreciation should be recorded by JoyCo for the year ended December 31,2022?

Question

Quizplus · Accepted Answer

To calculate depreciation using the double-declining-balance method, we first calculate the straight-line depreciation rate:

Straight-line depreciation rate = 1 / Useful life = 1 / 10 = 0.1

Double-declining-balance depreciation rate = 2 * Straight-line depreciation rate = 2 * 0.1 = 0.2

For the first year, we apply the double-declining-balance rate to the full cost of the equipment:

Depreciation for 2022 = Beginning book value * Double-declining-balance rate

Beginning book value = Cost - Accumulated depreciation
Beginning book value = $90,000 - $0 = $90,000

Depreciation for 2022 = $90,000 * 0.2 = $18,000

Since the residual value is $10,000, the depreciation for 2022 should be limited to ($90,000 - $10,000) = $80,000:

Depreciation for 2022 = Minimum[(Cost - Accumulated depreciation), (Double-declining-balance rate * Beginning book value)]
Depreciation for 2022 = Minimum[($80,000 - $0), ($18,000)] = $18,000

Therefore, the correct answer is D ($13,500). This means that the machine was depreciated by $13,500 in the first year.

JoyCo Acquired Equipment on April 1,2022,at a Cost of $90,000