Use the double-declining-balance method of depreciation. Round to the nearest dollar.
-New Town Deli buys refrigerated counters for $34,000 and estimates the life at 5 years with a scrap
Value of $3,400. What is the amount of depreciation for the third year?

Question

Quizplus · Accepted Answer

First, we need to calculate the depreciation rate: 
Depreciation rate = 2 / 5 = 0.4 
(Note: Double-declining-balance method doubles the straight-line depreciation rate which is 1/5 or 0.2 since the estimated life is 5 years.) 
Then, we can calculate the depreciation for each year:

Year 1: $34,000 x 0.4 = $13,600 
Year 2: ($34,000 - $13,600) x 0.4 = $8,160 
Year 3: ($34,000 - $13,600 - $8,160) x 0.4 = $4,896

Therefore, the amount of depreciation for the third year is $4,896, so the answer is C. 1. Calculate the depreciation rate:
Double-declining-balance rate = 2 / Estimated life
Double-declining-balance rate = 2 / 5 = 0.4 or 40%

2. Calculate the depreciation for the first year:
Depreciation = Beginning book value x Double-declining-balance rate
Depreciation = $34,000 x 40% = $13,600

3. Calculate the book value at the end of the first year:
Book value = Beginning book value - Depreciation
Book value = $34,000 - $13,600 = $20,400

4. Use the same formula to calculate the depreciation for the second year:
Depreciation = Book value at the end of the first year x Double-declining-balance rate
Depreciation = $20,400 x 40% = $8,160

5. Calculate the book value at the end of the second year:
Book value = Book value at the end of the first year - Depreciation
Book value = $20,400 - $8,160 = $12,240

6. Use the same formula to calculate the depreciation for the third year:
Depreciation = Book value at the end of the second year x Double-declining-balance rate
Depreciation = $12,240 x 40% = $4,896

Therefore, the amount of depreciation for the third year is $4,896, which is choice C.

Use the Double-Declining-Balance Method of Depreciation