On April 1, 2019, O'Malley Co. purchased machinery for $120,000. Salvage value was estimated to be $5,000. The machinery will be depreciated over ten years using the double-declining balance method.
If depreciation is computed on the basis of the nearest full month, determine the depreciation expense for the period January 1 thru December 31, 2020 on this machinery.

Question

Quizplus · Accepted Answer

The double-declining balance method depreciates assets at twice the straight-line rate. The straight-line rate for 10 years is 10%, so the double-declining rate is 20%. For the first year (2019), the depreciation is 20% of $120,000, which is $24,000. However, the depreciation for 2020 is based on the new book value ($120,000 - $24,000 = $96,000), so 20% of $96,000 is $19,200. The question, however, seems to have a calculation discrepancy as none of the provided options exactly match the expected calculation for the second year using the double-declining balance method. The closest option given the standard calculation method is $20,400, suggesting a possible misinterpretation of the depreciation calculation or an error in the question's provided options.