Jamar Company purchased a depreciable asset for $150,000.The estimated residual value is $10,000, and the estimated useful life is 8 years.The double-declining balance method will be used for depreciation.What is the depreciation expense for the second year on this asset?

Question

Quizplus · Accepted Answer

The double-declining balance method depreciates the asset at twice the straight-line rate, which is calculated as follows:
Straight-line rate = 100% ÷ useful life = 100% ÷ 8 = 12.5%
Double-declining rate = 2 × straight-line rate = 2 × 12.5% = 25%
The depreciation expense for the first year is calculated as follows:
Depreciation base = cost – residual value = $150,000 – $10,000 = $140,000
Depreciation expense = double-declining rate × depreciation base = 25% × $140,000 = $35,000
The depreciation expense for the second year is calculated as follows:
Depreciation base = cost – accumulated depreciation = $150,000 – $35,000 = $115,000
Depreciation expense = double-declining rate × depreciation base = 25% × $115,000 = $28,750
Therefore, the answer is C) $28,125.

Jamar Company Purchased a Depreciable Asset for $150,000