The Mash Tun Corp. purchased equipment on September 1, 2013 for $200,000. The residual value is $20,000 and the estimated life is 5 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2014, if the Mash Tun Corp. uses the double-declining-balance method of depreciation.

Question

Quizplus · Accepted Answer

The double-declining-balance method of depreciation results in a higher depreciation expense in the early years of an asset's life. The depreciation rate is twice the straight-line rate. The straight-line rate is calculated by dividing the depreciable cost of the asset by its estimated life. The depreciable cost of the asset is the cost of the asset minus its residual value.The depreciable cost of the asset is $200,000 - $20,000 = $180,000. The straight-line rate is $180,000 / 5 years = 36,000. The double-declining-balance rate is 2 * 36,000 = 72,000.The depreciation expense for the year ending December 31, 2014 is $180,000 * 72,000 / 100 = $69,333.