Question

A company purchased factory equipment for $250,000. It is estimated that the equipment will have a $25,000 salvage value at the end of its estimated five year useful life. If the company uses the double-declining balance method of deprecation, the amount of annual depreciation recorded for the second year after purchase would be

a. $100,000b. $60,000c. $90,000d. $43,000

Answer 1

b. $60,000

Step-by-step explanation:

Double declining method is double the straight line depreciation rate.

Normal straight line depreciation = 1 / useful life = 1/5 = 20%

Double declining rate = 20 * 2 = 40%

Depreciation for 1st year = 250,000 * 0.40 = $100,000

Depreciation for 2nd year = (250,000 - 100,000) * 0.40 = $60,000

Hope that helps.