ReelGood Corp. purchased equipment on January 1, 2021 for $275,000. It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life. The asset's useful life was estimated at 5 years or 10,000 units of output. The company has a December 31 year end. Assuming the double-declining-balance depreciation method is used, what is the net book value (carrying value)of the asset on December 31, 2021?

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Quizplus · Accepted Answer

The double-declining-balance depreciation method accelerates depreciation, applying a higher depreciation rate in the earlier years of an asset's life. The formula for annual depreciation under this method is: (2 / Useful life in years) * Book value at the beginning of the year. For the first year: (2 / 5) * $275,000 = 0.4 * $275,000 = $110,000 depreciation expense for 2021. Subtracting this from the original cost gives a net book value: $275,000 - $110,000 = $165,000.