Ella Inc. purchased machinery that was installed and ready for use on January 3, 2019, at a total cost of $460,000. Residual value was estimated at $60,000. The machinery will be depreciated over five years using the double-declining-balance method. For the calendar year 2020, Ella should record depreciation expense on this machinery of

Question

Quizplus · Accepted Answer

To calculate the annual depreciation expense, we first need to calculate the annual depreciation rate using the double-declining-balance method.

Step 1: Calculate the straight-line depreciation rate
Straight-line depreciation rate = 1/5 = 0.2 (since the machinery will be depreciated over 5 years)

Step 2: Calculate the double-declining-balance depreciation rate
Double-declining-balance rate = 2 x straight-line rate = 2 x 0.2 = 0.4

Step 3: Calculate the annual depreciation expense for 2020
Depreciation expense for 2020 = Beginning book value x double-declining-balance rate 
Beginning book value = Total cost - Accumulated depreciation 
Beginning book value for 2020 = $460,000 - ($460,000 x 0.4) = $276,000

Depreciation expense for 2020 = $276,000 x 0.4 = $110,400

Therefore, the correct answer is B.

Ella Inc Purchased Machinery That Was Installed and Ready for Use