Question

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?

Answer 1

The depreciation expense for the second year would be $6400

Step-by-step explanation:

Double declining balance method is that method of depreciation where depreciation on the asset continues until the value of the asset comes down to its salvage value.

Firstly we will here find the depreciation rate here , where we can use the formula -

straight line declining depreciation rate x 2,

where straight line declining depreciation rate = 100% / estimated useful life

so, (100% / estimated useful life of asset) x 2

= (100% / 10) x 2

= 10% x 2

= 20% ( double declining depreciation rate )

DEPRECIATION EXPENSE FOR FIRST YEAR =

$40,000 X 20% = $8000

DEPRECIATION EXPENSE FOR SECOND YEAR =

$40,000 - $8000 X 20%

= $32,000 X 20%

= $6400