On July 1, 2020, Eland Corp. purchased a machine for $375,000. The machine has an estimated useful life of five years and a residual value of $50,000. The machine is being depreciated using the double-declining-balance method. For the year ended December 31, 2020, Eland should record depreciation expense on this machine of

Question

Quizplus · Accepted Answer

The double-declining-balance method calculates depreciation expenses by applying twice the straight-line rate to the net book value of the asset. The straight-line rate is computed by dividing 1 by the number of years of the asset's useful life. In this case, the straight-line rate is 1/5 or 0.2. Twice that rate is 0.4.

In the first year, the net book value of the machine is $375,000 - 0 = $375,000. Applying the double-declining-balance method, the depreciation expense would be $375,000 x 0.4 = $150,000. However, the question is only asking for the depreciation expense for the year ended December 31, 2020. Since the machine was purchased on July 1, 2020, only half a year of depreciation expense should be recorded. Therefore, the depreciation expense for the year ended December 31, 2020 is $150,000 / 2 = $75,000.