Forrester Company purchased a machine on January 1, 2019 for $60,000, with a 5-year life, and a $6,000 residual life. If the company uses the double-declining balance method of depreciation, compute the book value of the machine on December 31, 2021.

Question

Quizplus · Accepted Answer

The double-declining balance method of depreciation involves doubling the straight-line rate of depreciation. For a 5-year life asset, the straight-line depreciation rate is 20% (100% / 5 years). Therefore, the double-declining balance rate is 40% (2 * 20%). Year 1 depreciation: $60,000 * 40% = $24,000. Book value at end of Year 1: $60,000 - $24,000 = $36,000.Year 2 depreciation: $36,000 * 40% = $14,400. Book value at end of Year 2: $36,000 - $14,400 = $21,600.Year 3 depreciation: $21,600 * 40% = $8,640. Book value at end of Year 3: $21,600 - $8,640 = $12,960.

Forrester Company Purchased a Machine on January 1, 2019 for $60,000