Thomas Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a residual value of $15,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's carrying amount on December 31, Year 3 will be:
A) $27,540
B) $21,600
C) $32,400
D) $18,360
E) $90,000

Question

Quizplus · Accepted Answer

The double-declining-balance method involves depreciating the asset at twice the straight-line rate. The straight-line rate is 20% (1/5 years), so the double rate is 40%. Depreciation for Year 1 (3 months) is $100,000 * 40% * 3/12 = $10,000. Year 2 depreciation is ($100,000 - $10,000) * 40% = $36,000. Year 3 depreciation is ($90,000 - $36,000) * 40% = $21,600. The carrying amount at the end of Year 3 is $90,000 - $36,000 - $21,600 = $32,400.

Thomas Enterprises Purchased a Depreciable Asset on October 1, Year