Question

On April 1, Cyclone Co. purchases a trencher for $280,000. The machine is expected to last five years and have a salvage value of $40,000. Exercise 8-12 Double-declining-balance, partial-year depreciation LO C2 Compute depreciation expense at December 31 for both the first year and second year assuming the company uses the double-declining-balance method. (Enter all amounts as positive values.)

Answer 1

The first year's depreciation expense is $84,000, calculated as 9/12 of the annual depreciation expense, and the second year's depreciation expense is $78,400, after reducing the book value by the first year's depreciation.

Step-by-step explanation:

The question is asking for the calculation of depreciation expense using the double-declining-balance method for a trencher purchased by Cyclone Co. for $280,000 with a salvage value of $40,000 and a five-year useful life.

To calculate the first year depreciation expense, we would first determine the double-declining rate: (1 / 5 years) * 2 = 40%. Since this is a partial year calculation starting from April 1st, we will calculate depreciation for 9 months (April through December) out of the full year.

The first-year depreciation expense would be:
$280,000 (cost) * 40% (rate) = $112,000.
Since it's for 9 months only:
$112,000 * (9/12) = $84,000.

For the second year, we must first reduce the book value of the asset by the first-year depreciation:
$280,000 - $84,000 = $196,000.
Now we apply the 40% again:
$196,000 * 40% = $78,400 second-year depreciation expense.

Answer 2

• Year 1 = $84,000
• Year 2 = $78,400

Step-by-step explanation:

Double declining means that the asset is depreciating at double the rate that it would with straight method:

Straight line depreciation = 280,000 / 5 years

= $56,000

Rate = 56,000 / 280,000 = 20%

Double declining will be:

= 20 * 2 = 40%

Year 1 Depreciation:

= 40% * 280,000 * 9/12 months

= $84,000

Year 2 Deprecation:

= 40% * Net book value

= 40% * (280,000 - 84,000)

= $78,400