On October 1, 2015, Holt Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2015, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation?
A)$78,000
B)$90,000
C)$108,000
D)$114,000

Question

Quizplus · Accepted Answer

Calculating annual depreciation using double-declining-balance method:

Depreciation rate = 2 / Useful life = 2 / 5 = 40%
Year 1 depreciation = $120,000 x 40% = $48,000

Book value on December 31, 2015:

Cost = $120,000
Accumulated depreciation (Year 1) = $48,000
Book value = Cost - Accumulated depreciation = $120,000 - $48,000 = $72,000

Using double-declining-balance method, the depreciation expense in the first year is highest and reduces each year. Therefore, the book value at the end of the first year will be lower than if straight-line method is used. The book value is calculated as cost minus accumulated depreciation.

On October 1, 2015, Holt Company Places a New Asset