Question

A plant asset cost $96,000 and is estimated to have a $12,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be

a. $8,040.
b. $13,500.
c. $11,812.
d. $9,190.

Answer 1

option (b) $13,500

Step-by-step explanation:

Data provided in the question:

Cost of the plant asset = $96,0003

Salvage value = $12,000

Useful life = 8 years

Now,

using the double-declining-balance method

Depreciation rate =
`2*\frac{\textup{1}}{\textup{Useful life}}`

or

Depreciation rate =
`2*\frac{\textup{1}}{\textup{8}}`

or

Depreciation rate = 0.25 or 25%

Thus,

For year 1

Depreciation expense = Depreciation rate × year book value

= 0.25 × $96,000

= $24,000

Book value for year 2 = $96,000 - $24,000 = $72,000

For year 2

Depreciation expense = Depreciation rate × year 2 book value

= 0.25 × $72,000

= $18,000

Book value for year 3 = $72,000 - $18,000 = $54,000

For year 3

Depreciation expense = Depreciation rate × year 3 book value

= 0.25 × $54,000

= $13,500

Hence,

The correct answer is option (b) $13,500