Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value.
- Depreciation expense in year 2 is:
A) $9,600.
B) $8,000.
C) $14,400.
D) $4,800.
E) $5,760.

Question

Quizplus · Accepted Answer

First, we need to calculate the annual depreciation expense using the double-declining-balance method.

Step 1: Determine the straight-line depreciation rate. 
Straight-line depreciation rate = 1 / Useful life = 1 / 5 = 0.2 or 20%

Step 2: Determine the double-declining-balance depreciation rate. 
Double-declining-balance depreciation rate = Straight-line depreciation rate x 2 = 0.2 x 2 = 0.4 or 40%

Step 3: Calculate the annual depreciation expense. 
Annual depreciation expense = Beginning book value x Double-declining-balance depreciation rate 
Book value at beginning of year 1 = Cost - Accumulated depreciation = $24,000 - 0 = $24,000 
Annual depreciation expense for year 1 = $24,000 x 40% = $9,600 
Book value at beginning of year 2 = Cost - Accumulated depreciation = $24,000 - $9,600 = $14,400 
Annual depreciation expense for year 2 = $14,400 x 40% = $5,760

Therefore, the answer is E ($5,760).

Mohr Company Purchases a Machine at the Beginning of the Year