Hotel-R-Us owns a machine that it purchased on Jan 1, 2019 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, 2021 for $140,000. What was the accumulated depreciation at December 31, 2021?

Question

Quizplus · Accepted Answer

The declining balance method of depreciation involves multiplying the book value of the asset at the beginning of the year by a fixed rate. Here, the rate is 20%. For the first year (2019), the depreciation expense is 20% of $600,000, which is $120,000. This leaves a book value of $480,000 at the end of 2019. For the second year (2020), the depreciation expense is 20% of $480,000, which is $96,000, leaving a book value of $384,000. For the third year (2021), the depreciation expense is 20% of $384,000, which is $76,800, leaving a book value of $307,200. The total accumulated depreciation by the end of 2021 is $120,000 + $96,000 + $76,800 = $292,800.

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