Paulson Transport Company
On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000.It has a ten-year useful life and a residual value of $50,000.The company uses the double-declining-balance method.
-What was the depreciation expense for Paulson Transport for the year ended December 31, 2016?

Question

Quizplus · Accepted Answer

Double-declining-balance method = (2 x Straight-line rate) x Book value at beginning of the year
Straight-line rate = 100% / 10 years = 10%
Book value at beginning of the year 2016 = Cost - Accumulated depreciation = $2,000,000 - 2 x 10% x $2,000,000 = $1,400,000

Depreciation expense for the year ended December 31, 2016 = (2 x 10%) x $1,400,000 = $280,000

However, the depreciation expense cannot exceed the depreciable base (Cost - Residual value).
Depreciation expense for the year ended December 31, 2016 = Minimum {(2 x 10%) x $1,400,000, $1,950,000 - $50,000} = Minimum {$280,000, $1,900,000} = $280,000

Therefore, the depreciation expense for Paulson Transport for the year ended December 31, 2016 was $320,000 (choice C).

Paulson Transport Company On January 1, 2015, Paulson Transport Company Purchased a Ship