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 31,2013,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. For the first year (2011), the depreciation expense is 40% of $400,000, which is $160,000. This leaves a book value of $240,000 ($400,000 - $160,000) at the beginning of 2012. For 2012, the depreciation expense is 40% of $240,000, which is $96,000, leaving a book value of $144,000 ($240,000 - $96,000) at the beginning of 2013. For 2013, the depreciation expense is 40% of $144,000, which is $57,600.

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