A depreciable asset that cost $100,000 had an estimated useful life of 5 years and estimated residual value of $10,000.What is the first year for which depreciation would be greater under the straight-line method than under the declining-balance method with an acceleration rate of 200%?
A)The first year.
B)The second year.
C)The third year.
D)The fourth year.

Question

Quizplus · Accepted Answer

Under the straight-line method, the annual depreciation expense would be calculated as ($100,000 - $10,000) / 5 = $18,000 per year.

Under the declining-balance method with an acceleration rate of 200%, the depreciation rate would be double the straight-line rate, or 36% per year (200% / 5 years). Therefore, the depreciation expense in the first year would be $100,000 x 36% = $36,000.

In the second year, the net book value (NBV) would be $100,000 - $18,000 - $36,000 = $46,000. The depreciation expense for the second year would be $46,000 x 36% = $16,560.

In the third year, the NBV would be $100,000 - $18,000 - $36,000 - $16,560 = $29,440. The straight-line depreciation for the third year would be $18,000, but the declining-balance depreciation would be $29,440 x 36% = $10,598.40, which is lower than the straight-line amount.

Therefore, the answer is C) the third year.

A Depreciable Asset That Cost $100,000 Had an Estimated Useful