Dewey Company purchased a machine that was installed and placed in service on January 2, 2010, at a total cost of $480,000. Residual value was estimated at $80,000. The machine is being depreciated over ten years by the double-declining-balance method. For the year 2011, Dewey should record depreciation expense of
A) $64,000.
B) $76,800.
C) $80,000.
D) $96,000.

Question

Quizplus · Accepted Answer

To calculate the depreciation with double-declining-balance method, determine the straight line rate first.

Straight line rate = 1/10 (useful life = 10 years)

Straight line depreciation = (Cost - Residual value)/Useful life = ($480,000 - $80,000)/10 = $40,000/year

Double-declining-balance rate = 2 * straight line rate = 2 * 1/10 = 0.2

For the first year, depreciation expense = beginning book value * double-declining-balance rate

Beginning book value = Cost = $480,000

Depreciation expense = $480,000 * 0.2 = $96,000

For the second year, depreciation expense = (beginning book value - accumulated depreciation) * double-declining-balance rate

Beginning book value = Cost - accumulated depreciation = $480,000 - $96,000 = $384,000

Depreciation expense = $384,000 * 0.2 = $76,800

Therefore, for the year 2011, Dewey should record depreciation expense of $76,800.

Dewey Company Purchased a Machine That Was Installed and Placed