A company purchased factory equipment for $700,000.It is estimated that the equipment will have a $70,000 salvage value at the end of its estimated 5-year useful life.If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be

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Quizplus · Accepted Answer

The double-declining-balance method calculates depreciation by doubling the straight-line rate. The straight-line rate is 1/5 = 20%, so the double rate is 40%. First-year depreciation is 40% of $700,000 = $280,000. The second-year depreciation is 40% of the remaining book value ($700,000 - $280,000) = $168,000.

A Company Purchased Factory Equipment for $700,000