Question

On January 1, a machine with a useful life of five years and a residual value of $15,000 was purchased for $45,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?

a. $10,800
b. $18,000
c. $14,400
d. $8,640

Answer 1

option (a) $10,800

Step-by-step explanation:

Data provided in the question:

Useful life of the machine = 5 years

Residual value = $15,000

Purchasing cost = $45,000

Now,

The rate of depreciation under the double declining method

Rate of depreciation =
`\frac{2*\textup{1}}{\textup{Useful life}}`

or

Rate of depreciation =
`\frac{2*\textup{1}}{\textup{5}}`

or

Rate of depreciation = 0.4 or 40%

Therefore,

Depreciation expense for the year 1

= Rate of depreciation × Book value in year 1

= 0.40 × $45,000

= $18,000

Book value in year 2 = $45,000 - $18,000

= $27,000

Depreciation expense for the year 2

= Rate of depreciation × Book value in year 2

= 0.4 × $27,000

= $10,800

Hence,

The correct answer is option (a) $10,800