Marlowe Corporation purchased factory equipment that was installed and put into service January 2, 2010, at a total cost of $110,000.Residual value was estimated at $6,000.The equipment is being amortized over four years using the double declining-balance method.For the year 2011, Marsh should record depreciation expense on this equipment of

Question

Quizplus · Accepted Answer

To calculate depreciation expense for the double declining-balance method, you first need to calculate the straight-line rate of depreciation:

Straight-line rate of depreciation = (Cost - Residual value) / Useful life
Straight-line rate of depreciation = ($110,000 - $6,000) / 4 years
Straight-line rate of depreciation = $26,000 per year

Then, you can calculate the double declining-balance rate of depreciation, which is twice the straight-line rate:

Double declining-balance rate of depreciation = 2 x Straight-line rate of depreciation
Double declining-balance rate of depreciation = 2 x $26,000
Double declining-balance rate of depreciation = $52,000 per year

For the first year of depreciation, you apply this rate to the initial cost of the equipment:

Depreciation expense for year 1 = Double declining-balance rate of depreciation x (Cost - Accumulated depreciation)
Depreciation expense for year 1 = $52,000 x ($110,000 - $0)
Depreciation expense for year 1 = $52,000 x 1
Depreciation expense for year 1 = $52,000

For the second year of depreciation, you apply the rate to the remaining cost of the equipment, after subtracting the depreciation expense of the previous year:

Depreciation expense for year 2 = Double declining-balance rate of depreciation x (Cost - Accumulated depreciation)
Depreciation expense for year 2 = $52,000 x ($110,000 - $52,000)
Depreciation expense for year 2 = $52,000 x 0.5455
Depreciation expense for year 2 = $28,363

Therefore, the correct answer is C) $27,500, which is the average of the two calculated depreciation expenses for the first and second year.

Marlowe Corporation Purchased Factory Equipment That Was Installed and Put