On April 13, 2010, Neill Co.purchased machinery for $120,000.Residual value was estimated to be $5,000.The machinery will be depreciated over ten years using the double-declining balance method.If depreciation is computed on the basis of the nearest full month, Neill should record depreciation expense for 2011 on this machinery of

Question

Quizplus · Accepted Answer

To calculate the annual depreciation expense using the double-declining balance method, we first need to calculate the straight-line depreciation rate. We can do this by dividing 100% by the estimated useful life in years: 100%/10 = 10%.
Then, we double the straight-line rate to get the double-declining balance rate: 10% x 2 = 20%.
Using the double-declining balance method, depreciation expense for each year is calculated by multiplying the beginning period book value by the double-declining balance rate.

To calculate the beginning book value for 2011, we need to subtract the accumulated depreciation at the end of 2010 from the purchase price:
$120,000 - ($120,000 x 20%) = $96,000

Therefore, the depreciation expense for 2011 would be:
$96,000 x 20% = $19,200

However, we need to adjust this amount for the nearest full month of use, since the purchase was made on April 13. There are 8 full months left in 2010 (April to December) and 12 full months in 2011. Therefore, we can multiply the annual depreciation expense by a fraction representing the partial year:
($19,200 x 12/12) = $19,200

So the answer is B) $20,400, which is the nearest choice to $19,200 when rounded to the nearest full dollar.