On January 1, 2016, Grove City Corp.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 Grove City Corp.for the year ended December 31, 2016?

Question

On January 1, 2016, Grove City Corp.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.
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-What was the depreciation expense for Grove City Corp.for the year ended December 31, 2016?

Quizplus · Accepted Answer

The double-declining-balance method of depreciation involves doubling the straight-line depreciation rate. The straight-line depreciation rate for a 10-year useful life is 10%. Doubling this gives a depreciation rate of 20% per year. Applying this rate to the initial cost of $2,000,000 gives a depreciation expense of $400,000 for the first year (20% of $2,000,000).