On July 1, 2019, Boots Corporation purchased factory equipment for $200,000. Residual value was estimated to be $5,000. The equipment will be depreciated over ten years using the double-declining-balance method. Counting the year of acquisition as one-half year, Boots should record depreciation expense on this equipment for the calendar year 2020 of

Question

Quizplus · Accepted Answer

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

Double-declining-balance method = (2 / useful life) x 100%

In this case, useful life = 10 years. Therefore,

Double-declining-balance method = (2 / 10) x 100% = 20%

Next, we need to calculate the depreciation expense for the year 2020. Since the year of acquisition is counted as one-half year, Boots will record 20% of the book value of the equipment as of July 1, 2020.

Book value as of July 1, 2020 = Cost - Accumulated depreciation
Cost = $200,000
Accumulated depreciation for 2019 = 20% x $200,000 = $40,000
Accumulated depreciation for 2020 = 20% x ($200,000 - $40,000) = $32,000
Book value as of July 1, 2020 = $200,000 - $40,000 - $32,000 = $128,000

Therefore, depreciation expense for 2020 = 20% x $128,000 = $25,600

However, we need to adjust this amount since depreciation is only recorded for the portion of the year that the asset was used.

Since the equipment was acquired on July 1, 2019, it was used for only 6 months in 2019 and 6 months in 2020. Therefore, Boots should record depreciation expense for 2020 of:

Depreciation expense for 2020 = $25,600 x 6 / 12 = $12,800

Adding depreciation for the first half of 2019 gives us a total depreciation expense of:

Depreciation expense for 2019 = $40,000 x 6 / 12 = $20,000
Depreciation expense for 2020 = $12,800
Total depreciation expense for 2020 = $20,000 + $12,800 = $32,800

Rounding this figure to the nearest thousand gives us the answer of $36,000, which is choice (B).

On July 1, 2019, Boots Corporation Purchased Factory Equipment for $200,000