Norris Corporation purchased factory equipment that was installed and put into service January 2, 2006, at a total cost of $60,000.Salvage value was estimated at $4,000.The equipment is being depreciated over four years using the double-declining balance method.For the year 2007, Norris should record depreciation expense on this equipment of

Question

Quizplus · Accepted Answer

The double-declining balance method involves depreciating the asset at twice the rate of the straight-line method. To calculate the depreciation rate for this equipment, divide 100% by the number of years of useful life, which is 4. That gives a depreciation rate of 25%. Doubling that rate gives a depreciation rate of 50%. 
In 2006, the equipment was in service for only one day, so no depreciation expense was charged for that year. 
For 2007, the depreciation expense can be calculated as follows:
Beginning book value = $60,000 (cost) - $0 (accumulated depreciation for 2006) = $60,000
Depreciation expense = (Beginning book value) x (Depreciation rate) = $60,000 x 50% = $30,000
However, since this is the double-declining balance method, you must take into account the salvage value. Once the book value reaches the salvage value, you stop depreciating the asset. Therefore, the maximum depreciation expense you can take in any year is:
(Beginning book value - Salvage value) x (Depreciation rate)
= ($60,000 - $4,000) x 50% 
= $28,000
Therefore, the depreciation expense for 2007 is $15,000 (choice B) since it is lower than the maximum allowed of $28,000.

Norris Corporation Purchased Factory Equipment That Was Installed and Put