On January 1, 2016, Margo Company acquired machinery at a cost of $160,000. This machinery was being depreciated by the double-declining-balance method over an estimated life of five years with no salvage value. At the beginning of 2018, Margo changed to and could justify straight-line depreciation. Margo's tax rate is 30 percent. What is the amount of depreciation expense to be included in 2018 net income?
A) $7,200
B) $24,000
C) $19,200
D) $38,400

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for 2018 after the change to straight-line depreciation, we first need to determine the book value of the machinery at the beginning of 2018 and the remaining useful life. Under the double-declining-balance method, the depreciation rate is 40% (2 divided by the useful life of 5 years). For 2016, the depreciation expense is $64,000 (40% of $160,000). The book value at the end of 2016 is $96,000 ($160,000 - $64,000). For 2017, the depreciation expense is $38,400 (40% of $96,000), leaving a book value of $57,600 ($96,000 - $38,400) at the beginning of 2018. With 3 years remaining in the useful life and no salvage value, the straight-line depreciation for each of the remaining years is $19,200 ($57,600 divided by 3).

On January 1, 2016, Margo Company Acquired Machinery at a Cost