Question

Schager Company purchased a computer system on January 1, 2010, at a cost of $25,000. The estimated useful life is 10 years, and the estimated salvage value is $3,000. 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 is $3,520

Step-by-step explanation:

Under the straight-line method, useful life is 10 years, so the asset's annual depreciation will be 10% of the Depreciable cost.

Depreciable cost = Total asset cost - salvage value = $25,000-$3,000 = $22,000

Under the double-declining-balance method the 10% straight line rate is doubled to 20% - multiplied times the Depreciable cost's book value at the beginning of the year.

In the first year, depreciation expense = 20% x $22,000 = $4,400

At the beginning of the second year, the Depreciable cost's book value is $22,000-$4,400 = $17,600

Depreciation expense in second year = 20% x $17,600 = $3,520