Use the double-declining-balance method of depreciation. Round to the nearest dollar.
-Royal Oaks Golf Course buys a tractor for $8,900 and estimates the life at 8 years with a scrap value
Of $890. What is its book value at the end of the fourth year?

Question

Quizplus · Accepted Answer

Step 1: Calculate the depreciation rate
Depreciation rate = 2 /estimated life = 2/8 = 0.25 = 25%

Step 2: Calculate the depreciation expense for each year
Year 1: $8,900 x 25% = $2,225
Year 2: ($8,900 - $2,225) x 25% = $1,669
Year 3: ($8,900 - $2,225 - $1,669) x 25% = $1,252
Year 4: ($8,900 - $2,225 - $1,669 - $1,252) x 25% = $939 (rounded to nearest dollar)

Step 3: Calculate the book value at the end of the fourth year
Book value = cost - accumulated depreciation
Book value = $8,900 - ($2,225 + $1,669 + $1,252 + $939) = $2,815 (rounded to nearest dollar)

Therefore, the book value at the end of the fourth year is $2,816. The best choice is B. 1. Calculate the depreciation rate: 
Depreciation rate = 2 / Estimate useful life 
Depreciation rate = 2 / 8 = 0.25 or 25%
2. Calculate the depreciation expense for each year: 
Year 1: $8,900 x 25% = $2,225 
Year 2: $8,900 - $2,225 = $6,675 
$6,675 x 25% = $1,669 
Year 3: $6,675 - $1,669 = $5,006 
$5,006 x 25% = $1,252 
Year 4: $5,006 - $1,252 = $3,754 
$3,754 x 25% = $939 
3. Calculate the book value at the end of the fourth year: 
Book value = Purchase price - Total depreciation expense 
Book value = $8,900 - ($2,225 + $1,669 + $1,252 + $939) 
Book value = $8,900 - $6,085 = $2,815 
Rounding to nearest dollar gives us a book value of $2,816.

Use the Double-Declining-Balance Method of Depreciation