The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020 at a cost of $150,000. The machine has an estimated useful life of 10 years and a residual value of $9,000. What should have been booked as depreciation expense in fiscal 2021?

Question

Quizplus · Accepted Answer

Under double-declining-balance method:
- Depreciation rate = 2÷10 = 20%
- The depreciation expense for 2020 = $150,000 × 20% = $30,000
- The book value at the end of 2020 = $150,000 - $30,000 = $120,000
- The depreciation expense for 2021 = $120,000 × 20% = $24,000

Under straight-line method:
- Depreciation rate = 1÷10 = 10%
- Annual depreciation expense = ($150,000 - $9,000) × 10% = $14,100

As the depreciation method was changed to straight-line, the depreciation expense for 2021 should be calculated using the straight-line method which is $14,100. Therefore, the best choice is B.

The Method of Depreciation Was Changed from the Double-Declining-Balance Method