On January 1,2012,Albatross Shipping Company bought equipment that cost $65,000 and had an estimated useful life of 5 years and an estimated salvage value of $5,000.The company uses the double-declining balance method of depreciation.At what rate will the equipment depreciate in 2012?

Question

Quizplus · Accepted Answer

To use the double-declining balance method, we first need to calculate the straight-line depreciation rate, which is:
(Straight-line rate) = (Cost - Salvage value) / Useful life
= ($65,000 - $5,000) / 5
= $12,000

The double-declining balance rate is two times the straight-line rate, which is:
(Double-declining balance rate) = 2 x (Straight-line rate)
= 2 x $12,000
= $24,000

Finally, to get the percentage rate, we divide the double-declining balance rate by the beginning book value (cost) of the asset:
(Depreciation rate as a percentage) = (Double-declining balance rate) / (Beginning book value)
= $24,000 / $65,000
= 0.3692 or 36.92%

Rounding to the nearest whole number, we get 40%, which is choice D. So the equipment will depreciate at a rate of 40% in 2012.

On January 1,2012,Albatross Shipping Company Bought Equipment That Cost $65,000