On October 1, 2011, Holt Company places a new asset into service.The cost of the asset is $80,000 with an estimated 5-year life and $20,000 residual value at the end of its useful life.What is the book value of the plant asset on the December 31, 2011, statement of financial position assuming that Holt Company uses the double-declining-balance method of depreciation?

Question

Quizplus · Accepted Answer

The double-declining-balance method involves depreciating the asset at twice the straight-line rate. The straight-line rate is 1/5 or 20%, so the double rate is 40%. For 2011, the depreciation is 40% of $80,000 for a full year, but since the asset was placed into service on October 1, only 3 months of depreciation is recorded: $80,000 * 40% * (3/12) = $8,000. The book value at December 31, 2011, is $80,000 - $8,000 = $72,000.

On October 1, 2011, Holt Company Places a New Asset