Protection Inc. purchased a fireproof safe for $3,850. Delivery costs totaled $134. The salvage value is $924 after 7 years. Using the 125% declining-balance depreciation method, calculate the book value at the end of year 1. (Round the declining-balance rate to 4 decimal places, and all dollar amounts to the nearest cent)

Question

Quizplus · Accepted Answer

The 125% declining-balance depreciation method means using 125% of the straight-line rate. First, calculate the straight-line rate, which is 100% / 7 years = 14.2857% per year. Then, 125% of this rate is 1.25 * 14.2857% = 17.8571%. The cost of the safe plus delivery is $3,850 + $134 = $3,984. The depreciation expense for the first year is 17.8571% of $3,984, which is $711.54. Therefore, the book value at the end of year 1 is $3,984 - $711.54 = $3,272.46.