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 adjustment is needed for fiscal 2020?

Question

Quizplus · Accepted Answer

Under the double-declining-balance method, the depreciation expense is higher in the early years of an asset's life and decreases over time. However, under the straight-line method, the depreciation expense is the same each year.

Using the double-declining-balance method, the depreciation expense for 2020 would be:

Depreciation rate = 2 / useful life = 2 / 10 = 0.2
Depreciation expense for 2020 = $150,000 x 0.2 = $30,000

Using the straight-line method, the depreciation expense for 2020 would be:

Depreciation rate = 1 / useful life = 1 / 10 = 0.1
Depreciation expense for 2020 = ($150,000 - $9,000) x 0.1 = $14,100

Therefore, an adjustment of ($30,000 - $14,100) = $15,900 is needed for fiscal 2020.

The correct answer is B.

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