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, 2017?

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, 2017?

Quizplus · Accepted Answer

- Double-declining-balance method: This method accelerates depreciation expense, meaning that a larger depreciation expense is recognized in earlier years and gradually decreases over time. 
- To calculate depreciation expense for a given year, we need to know the beginning book value, which is the original cost less accumulated depreciation up to the beginning of the year. 
- For this problem, the ship was purchased on January 1, 2016, so it was owned by the company for two full years in 2017.
- Year 1 depreciation: (2,000,000 - 50,000) x 2 / 10 = $390,000
- Book value at the beginning of Year 2: 2,000,000 - 390,000 = $1,610,000
- Year 2 depreciation: (1,610,000 - 50,000) x 2 / 10 = $312,000
- Therefore, the depreciation expense for Grove City Corp. for the year ended December 31, 2017, is $312,000.

The correct answer is C.