Warren Company plans to depreciate a new building using the double declining-balance depreciation method. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?
A)$30,720.
B)$32,000.
C)$58,880.
D)$64,000.

Question

Quizplus · Accepted Answer

Step 1: Calculate the straight-line depreciation rate
Straight-line depreciation rate = (1 / useful life) = (1 / 25) = 0.04 or 4%

Step 2: Calculate the double declining-balance rate (DDB rate)
DDB rate = straight-line rate x 2 = 4% x 2 = 8%

Step 3: Calculate the depreciation expense for the first year
Depreciation expense for the first year = (cost - residual value) x DDB rate = ($800,000 - $50,000) x 8% = $60,000

Step 4: Calculate the book value at the end of the first year
Book value at the end of the first year = cost - depreciation expense for the first year = $800,000 - $60,000 = $740,000

Step 5: Calculate the depreciation expense for the second year
Depreciation expense for the second year = book value at the end of the first year x DDB rate = $740,000 x 8% = $59,200

Therefore, the answer is C) $58,880.

Warren Company Plans to Depreciate a New Building Using the Double