Coyote, Inc. purchased a van for $68,000, with an estimated useful life of 5 years and a residual value of $8000. The company uses the double-declining-balance method of depreciation; however, for year 3 they switch to the straight-line method. There is no change to the estimated useful life or residual value. What is the accumulated depreciation balance at the end of year 4? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

Using the double-declining-balance method, the annual depreciation expense for the first three years is:

Year 1: (2/5) x $68,000 = $27,200
Year 2: (2/5) x ($68,000 - $27,200) = $16,320
Year 3: (2/5) x ($68,000 - [$27,200 + $16,320]) = $9,792

Using the straight-line method for year 4, the annual depreciation expense is:

($68,000 - $8,000) / 5 = $12,000

Therefore, the accumulated depreciation balance at the end of year 4 is:

$27,200 + $16,320 + $9,792 + $12,000 = $65,312

However, since the company switched to the straight-line method for year 3, only $4,000 of depreciation was taken that year, leaving $5,792 of depreciation that should have been taken under the double-declining-balance method. Therefore, we need to add that amount back to the accumulated depreciation balance:

$65,312 + $5,792 = $71,104

Finally, subtract the depreciation for year 4 under the straight-line method:

$71,104 - $12,000 = $59,104

Rounding to the nearest dollar gives us answer choice C: $54,506.