Easter Corp. owns a machine that it purchased on Jan 1, 2019 for $600,000. The machine had an estimated useful life of 10 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, 2020?

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 beginning of 2020. For the second year (2020), the depreciation expense is 20% of $480,000, which is $96,000. Therefore, the total accumulated depreciation at the end of 2020 is $120,000 (for 2019) + $96,000 (for 2020) = $216,000.