Fantasy Cruise Lines
On January 1, 2013, the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method.
-Refer to Fantasy Cruise Lines. What is the depreciation expense for the year ended December 31, 2013?

Question

Quizplus · Accepted Answer

Double-declining-balance method is a type of accelerated depreciation method which means that higher amounts of depreciation expense are recorded in the early years and it reduces in subsequent years.

The formula to calculate depreciation expense under the double-declining-balance method is:

Depreciation expense = (2 / useful life) x book value at the beginning of the year

Given:
Purchase price = $1,000,000
Useful life = 10 years
Residual value = $100,000

Book value at the beginning of the year 2013 = $1,000,000 (since it's the first year)

Depreciation expense for 2013 = (2 / 10) x $1,000,000 = $200,000

Therefore, the correct answer is C) $160,000.

Fantasy Cruise Lines on January 1, 2013, the Company Purchased a Ship for a Ship