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.
-The machine's book value at the end of year 2 is:
A) $8,640.
B) $14,400.
C) $7,200.
D) $12,000.
E) $9,600.

Question

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. 
-The machine's book value at the end of year 2 is:
A) $8,640.
B) $14,400.
C) $7,200.
D) $12,000.
E) $9,600.

Quizplus · Accepted Answer

The double-declining-balance method calculates depreciation as a percentage of the book value at the beginning of the year. The percentage is twice the straight-line rate, which is 100% / useful life. In this case, the straight-line rate is 20% (100% / 5 years), so the double-declining-balance rate is 40%.The book value at the end of year 2 is the original cost minus the accumulated depreciation. The accumulated depreciation for year 1 is $24,000 x 40% = $9,600. The accumulated depreciation for year 2 is $14,400 x 40% = $5,760. Therefore, the book value at the end of year 2 is $24,000 - $9,600 - $5,760 = $8,640.

Mohr Company Purchases a Machine at the Beginning of the Year