Colvin Enterprises purchased a depreciable asset on October 1,Year 1 at a cost of $100,000.The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life.If the asset is depreciated on the double-declining-balance method,the asset's book value on December 31,Year 2 will be:
A)$36,000
B)$42,000
C)$54,000
D)$16,000
E)$90,000

Question

Quizplus · Accepted Answer

Under the double-declining-balance method, the annual depreciation rate is twice the straight-line rate. The straight-line rate is calculated as (cost - salvage value) / useful life, so in this case, it is (100,000 - 20,000) / 5 = $16,000 per year. The double-declining-balance rate is therefore 2 x $16,000 = $32,000 per year.

For Year 1, the depreciation expense would be $32,000 x 3/12 (since the asset was purchased on October 1) = $8,000. This would leave a book value of $100,000 - $8,000 = $92,000 at the end of Year 1.

For Year 2, the depreciation expense would be $32,000 x 12/12 = $32,000. This would leave a book value of $92,000 - $32,000 = $60,000 at the end of Year 2. Therefore, the correct answer is C) $54,000 (which is not listed, so the closest answer is B) $42,000, which is incorrect.)

Colvin Enterprises Purchased a Depreciable Asset on October 1,Year 1