Gary Kraen Company purchased equipment on May 1,2014 for $100,000.The residual value is $10,000 and the estimated useful life is 10 years.What is the Depreciation Expense for the year ending December 31,2015,if the company uses the double-declining-balance method?

Question

Quizplus · Accepted Answer

Under the double-declining-balance method, the depreciation rate is twice the straight-line rate. To calculate the annual depreciation expense, we need to calculate the straight-line rate first. Straight-line rate can be calculated using the following formula:

Straight-line rate = (Cost - Residual Value) / Useful life

Straight-line rate = ($100,000 - $10,000) / 10 = $9,000

Depreciation rate (under double-declining-balance) = 2* Straight-line rate = 2* $9,000 = $18,000

Depreciation expense for the first year = Depreciation rate * ((number of months left in the year) /12)

Depreciation expense for the first year = $18,000 * (8/12) = $12,000

Therefore, the Depreciation expense for the year ending December 31, 2015, if the company uses the double-declining-balance method is $17,333 (i.e, $18,000 for the full year 2015, since it's the first year, we need to multiply by (12-5)/12, i.e, 7/12).

Gary Kraen Company Purchased Equipment on May 1,2014 for $100,000