Seally 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 depreciation expense for 2020?

Question

Quizplus · Accepted Answer

The depreciation expense for 2020 using the declining balance method at a rate of 20% is calculated on the book value at the beginning of the year. The book value at the beginning of 2020 is the initial cost ($600,000) minus the depreciation of the first year (20% of $600,000 = $120,000), which is $480,000. The depreciation expense for 2020 is 20% of $480,000, which equals $96,000.