A company purchased a computer on July 1, 2009. The computer has an estimated useful life of 5 years and will have no salvage value and was purchased for $10,000. It is estimated that the computer can be used for 5,000 hours. The computer was used for 450 hours during 2009. If the goal is to reduce taxable income to the lowest amount, which method should be elected and how much depreciation can be deducted in 2009?

Question

Quizplus · Accepted Answer

The double declining-balance method provides the highest depreciation expense in the first year of an asset's life, thus reducing taxable income the most. For a $10,000 asset with a 5-year life, the annual rate is 40% (2/5). However, since the asset was in use for only half the year, the depreciation expense for 2009 would be $2,000 (half of 40% of $10,000).

A Company Purchased a Computer on July 1, 2009