Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2016 and was used 2,700 hours in 2016 and 2,600 hours in 2017.

-Refer to the information about Norwood, Inc.
If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2017?

Question

Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2016 and was used 2,700 hours in 2016 and 2,600 hours in 2017.
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-Refer to the information about Norwood, Inc. ​
If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2017?

Quizplus · Accepted Answer

The double-declining-balance depreciation method calculates the depreciation expense as a percentage of the asset's carrying value. The formula to calculate the depreciation rate is: 
(2 / Useful life in years) x 100
In this case, the depreciation rate is:
(2 / 8) x 100 = 25%

To calculate the depreciation expense for 2017, we first need to calculate the carrying value of the crane at the beginning of the year:
Cost of the crane - Accumulated depreciation
$80,000 - (2 years x $30,000) = $20,000

The depreciation expense for 2017 is:
$20,000 (carrying value) x 25% (depreciation rate) = $5,000
Therefore, the answer is B) $15,000.