Ironworks Industries purchased a piece of equipment for $80,000 with an estimated salvage value of $15,000 on January 1. Its estimated life is 5 years. To the nearest dollar, what is the equipment's depreciation using double-declining-balance for year 2? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

To use double-declining-balance depreciation, we first calculate the straight-line depreciation rate:
(Original cost - Salvage value) / Estimated life = ($80,000 - $15,000) / 5 = $13,000
Then, we double this rate to get the double-declining-balance rate: 
$13,000 x 2 = $26,000
Finally, we apply this rate to the book value (cost minus accumulated depreciation) at the beginning of the year to find the depreciation expense for the year.

At the beginning of year 2, the book value would be: 
$80,000 (original cost) - Year 1 depreciation of $41,600 (2 x $26,000) = $38,400
Therefore, the depreciation expense for year 2 would be:
$38,400 x 0.40 = $15,360 (40% because it's double the straight-line rate)
Rounded to the nearest dollar, the answer is $19,200.

Ironworks Industries Purchased a Piece of Equipment for $80,000 with an Estimated