Question

Dixon Company purchased a depreciable asset for $32,000. The estimated salvage value is $4,000, and the estimated useful life is 4 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?(a)$6,400.(b)$7,000.(c)$8,000.(d)$16,000

Answer 1

option (c) $8,000

Step-by-step explanation:

Data provided in the question;

Purchasing cost of the asset = $32,000

Salvage value = $4,000

Useful life = 4 years

Now,

using the double-declining balance method

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

=
`2*\frac{\textup{1}}{\textup{4}}`

= 0.5 or 50% per year

Thus,

Depreciation for the first year = Book value - 0.5 × Book value

= $32,000 - 0.5 × $32,000

= $32,000 - $16,000

= $16,000

Therefore,

The book value for the second year

= Purchasing cost - Depreciation for the first year

= $32,000 - $16,000

= $16,000

Thus,

Depreciation expense for the second year

= Book value for second year - 0.5 × Book value for second

= $16,000 - 0.5 × $16,000

= $16,000 - $8,000

= $8,000

Hence,

The correct answer is option (c) $8,000