Vinson Co.purchased machinery that was installed and ready for use on January 3, 2006, at a total cost of $69,000.Salvage value was estimated at $9,000.The machinery will be depreciated over five years using the double-declining balance method.For the year 2007, Vinson should record depreciation expense on this machinery of

Question

Quizplus · Accepted Answer

First, we need to calculate the annual depreciation rate using double-declining balance method:
Depreciation rate = (100% / 5) x 2 = 40%
So, for the year 2007, we apply the depreciation rate to the net book value (cost - accumulated depreciation) of the machinery as of December 31, 2006:
Net book value as of December 31, 2006 = Cost - Accumulated Depreciation
Accumulated Depreciation = Depreciation rate x Beginning book value
Beginning book value = Cost - Salvage value

Year 2006:
Beginning book value = $69,000 - $9,000 = $60,000
Depreciation expense = $60,000 x 40% = $24,000
Accumulated depreciation = $24,000

Year 2007:
Beginning book value = $69,000 - $24,000 = $45,000
Depreciation expense = $45,000 x 40% = $18,000 (Option C is wrong because it uses straight line depreciation of $12,000/year)
Accumulated depreciation = $24,000 + $18,000 = $42,000
The net book value as of December 31, 2007 would be $27,000.
Therefore, the correct answer is B)$16,560.

Vinson Copurchased Machinery That Was Installed and Ready for Use on on January