Hotel-R-Us owns a machine that it purchased on Jan 1, 2010 for $600,000. The machine had an estimated useful life of 5 years and an estimated residual value of $100,000. The company uses the declining balance method with a rate of 20%. The machine was sold on December 31, 2012 for $140,000. What was the accumulated depreciation at December 31, 2012?

Question

Quizplus · Accepted Answer

The declining balance method applies a constant rate of depreciation to the declining book value each year. For the first year: $600,000 * 20% = $120,000. For the second year: ($600,000 - $120,000) * 20% = $96,000. For the third year: ($480,000 - $96,000) * 20% = $76,800. Accumulated depreciation by December 31, 2012 is $120,000 + $96,000 + $76,800 = $292,800.

Hotel-R-Us Owns a Machine That It Purchased on Jan 1