On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2011,using the double-declining balance method?

Question

Quizplus · Accepted Answer

The double-declining balance method of depreciation involves doubling the straight-line rate of depreciation. For a computer with a 5-year useful life, the straight-line depreciation rate is 20% per year (100% / 5 years). Doubling this rate gives a depreciation rate of 40% per year under the double-declining balance method. Applying this 40% rate to the initial cost of $400,000 results in a depreciation expense of $160,000 for the first year (40% of $400,000).

On January 1,2011,Ace Electronics Paid $400,000 Cash for a Computer