On October 1, 2017, Marshwinds Wind Turbine Company places a new asset into service. The cost of the asset is $8,000 with an estimated 5-year life and $2,000 residual value at the end of its useful life. What is the carrying amount of the long-lived asset on the December 31, 2017, balance sheet assuming that Marshwinds Wind Turbine Company uses the double diminishing-balance method of depreciation?

Question

Quizplus · Accepted Answer

The double diminishing-balance method of depreciation is also known as the 200% declining balance method. This method applies a constant rate of double the straight-line depreciation rate to the declining book value of the asset each year. The straight-line depreciation rate is calculated as (Cost - Residual Value) / Useful Life.

In this case, the straight-line depreciation rate is (8,000 - 2,000) / 5 = $1,200 per year.
The double declining balance rate is 2 * 1/5 = 40%.
The depreciation expense for the first year is $8,000 * 40% = $3,200.
The carrying amount on December 31, 2017, is $8,000 - $3,200 = $4,800.
However, since the residual value is $2,000, the asset cannot be depreciated below this value.
Therefore, the carrying amount on December 31, 2017, is $4,800 + $2,000 = $6,800.
Thus, the correct answer is C) $7,200.

On October 1, 2017, Marshwinds Wind Turbine Company Places a New