The cost of an asset is $1,110,000,and its residual value is $300,000.Estimated useful life of the asset is five years.Calculate depreciation for the second year using the double-declining-balance method of depreciation.

Question

Quizplus · Accepted Answer

Double-declining-balance method of depreciation involves depreciating the asset by a fixed percentage each year, which is twice the straight-line rate. The formula for calculating depreciation using this method is:

Depreciation expense = (2/Useful life) x Book value at the beginning of the year

In the second year, the book value of the asset is calculated as the cost of the asset minus accumulated depreciation from the first year. The accumulated depreciation for the first year is:

Accumulated depreciation = (2/Useful life) x Cost of asset
Accumulated depreciation = (2/5) x $1,110,000
Accumulated depreciation = $444,000

Therefore, the book value at the beginning of the second year is:

Book value = Cost of asset - Accumulated depreciation
Book value = $1,110,000 - $444,000
Book value = $666,000

Using the formula for depreciation expense, we get:

Depreciation expense = (2/5) x $666,000
Depreciation expense = $266,400

Therefore, the depreciation for the second year using the double-declining-balance method is $266,400. The correct choice is D.

The Cost of an Asset Is $1,110,000,and Its Residual Value