Schager Company purchased a computer system on January 1,2012,at a cost of $40,000.The estimated useful life is 10 years,and the estimated residual value is $5,000.Assuming the company will use the double-declining-balance method,what is the depreciation expense for the second year?

Question

Quizplus · Accepted Answer

To use the double-declining-balance method, first calculate the straight-line rate by dividing 100% by the estimated useful life, which is 10 years in this case. Therefore, the straight-line rate is 10%.

Double-declining-balance method uses twice the straight-line rate, or 20% (10% x 2). To calculate depreciation expense for the second year, multiply the book value at the beginning of the year by the double-declining-balance rate.

Book value at the beginning of the second year can be calculated as follows:
Cost - Accumulated Depreciation = $40,000 - ($40,000 x 20%) = $40,000 - $8,000 = $32,000

Depreciation expense for the second year = $32,000 x 20% = $6,400

Therefore, the correct answer is D, $6,400.

Schager Company Purchased a Computer System on January 1,2012,at a Cost