On June 1, 2018, Morgan Manufacturing acquired a machine for $100,000 with an estimated useful life of five years and an estimated residual value of $10,000. The company uses the double-declining-method of depreciation and takes a full year's depreciation in the year of acquisition and none in the year of disposition. If the machine were disposed of for $16,000 on May 1, 2020, the loss on disposal would be
A) $20,000.
B) $26,400.
C) $24,000.
D) $36,000.

Question

Quizplus · Accepted Answer

The double-declining-balance depreciation rate is 40% (2 x 1/5). Depreciation for 2018 is $40,000 ($100,000 x 40%). Depreciation for 2019 is $24,000 ($60,000 x 40%). The book value of the machine on May 1, 2020, is $36,000 ($100,000 - $40,000 - $24,000). The loss on disposal is $20,000 ($36,000 - $16,000).

On June 1, 2018, Morgan Manufacturing Acquired a Machine for $100,000