Fantasy Cruise Lines
On January 1, Year 1, the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method.
-Refer to the figure Fantasy Cruise Lines.What will the book value of the ship be at the end of its useful life?

Question

Quizplus · Accepted Answer

Using the double-declining-balance method, the annual depreciation is calculated as follows:

Year 1: (2/10) x $1,000,000 = $200,000
Year 2: (2/10) x ($1,000,000 - $200,000) = $160,000
Year 3: (2/10) x ($800,000 - $160,000) = $128,000
Year 4: (2/10) x ($640,000 - $128,000) = $102,400
Year 5: (2/10) x ($511,200 - $102,400) = $81,920
Year 6: (2/10) x ($409,600 - $81,920) = $65,536
Year 7: (2/10) x ($327,680 - $65,536) = $52,429
Year 8: (2/10) x ($262,144 - $52,429) = $41,943
Year 9: (2/10) x ($209,715 - $41,943) = $33,554
Year 10: (2/10) x ($167,772 - $33,554) = $26,843

Therefore, the accumulated depreciation at the end of Year 10 will be $1,000,000 - $100,000 - $200,000 - $160,000 - $128,000 - $102,400 - $81,920 - $65,536 - $52,429 - $41,943 - $33,554 - $26,843 = $47,035.

So, the book value of the ship at the end of its useful life will be $100,000 (residual value) minus $47,035 (accumulated depreciation) which equals $52,965. Therefore, the correct answer is B ($100,000 - $47,035 = $52,965).

Fantasy Cruise Lines On January 1, Year 1, the Company Purchased a Ship