Equipment is purchased for $80,000.It has an eight-year useful life and a $39,250 residual value.Under the double-declining-balance method,what is the depreciation expense for year 3?

Question

Quizplus · Accepted Answer

To calculate depreciation under double-declining-balance method, the following formula is used:

Depreciation Expense = (2 / Useful life) × Book value at the beginning of the period

In this case, the depreciable cost is the original cost minus the residual value:

Depreciable cost = $80,000 - $39,250 = $40,750

The book value (or carrying value) at the beginning of year 3 is the original cost minus the accumulated depreciation for the first 2 years:

Year 1 depreciation = (2 / 8) × $80,000 = $20,000
Year 2 depreciation = (2 / 8) × ($80,000 - $20,000) = $15,000
Accumulated depreciation at the end of year 2 = $20,000 + $15,000 = $35,000

Book value at the beginning of year 3 = $80,000 - $35,000 = $45,000

Now we can calculate the depreciation expense for year 3:

Depreciation expense = (2 / 8) × $45,000 = $11,250

Therefore, the answer is C) $5,750.

Equipment Is Purchased for $80,000