On July 1, 2016, American Stereo purchased stereo equipment for $5,000. The estimated life of the equipment was ten years and the residual value was estimated to be $2,000. Double-declining-balance depreciation was used. If calculations are based on the nearest whole month, depreciation expense for the year 2018 was

Question

Quizplus · Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/10 = 10%, so double is 20%. For 2018, the book value at the start of the year is $3,200 (after two years of depreciation: $5,000 - $1,000 - $800). Depreciation for 2018 is 20% of $3,200, which is $640.

On July 1, 2016, American Stereo Purchased Stereo Equipment for $5,000