The price of a telescope purchased by Future Labs Inc. was $32,100. It cost $898 for delivery. The salvage value at the end of 3 years is $6,764. Using the 150% declining-balance depreciation method, calculate the annual depreciation for year 2. (Round the declining-balance rate to 4 decimal places, and all dollar amounts to the nearest cent)

Question

Quizplus · Accepted Answer

The 150% declining-balance depreciation method calculates depreciation at 150% of the straight-line rate. First, calculate the straight-line rate, which is 1 divided by the useful life (3 years), equaling approximately 0.3333 or 33.33%. The 150% declining-balance rate is 0.3333 * 1.5 = 0.5 or 50%. The initial cost is the purchase price plus delivery, $32,100 + $898 = $32,998. For the first year, the depreciation is 50% of $32,998, which is $16,499. For the second year, subtract the first year's depreciation from the initial cost to get the new book value, $32,998 - $16,499 = $16,499. Then, apply the 50% rate again for the second year's depreciation, which is 50% of $16,499 = $8,249.50.

The Price of a Telescope Purchased by Future Labs Inc