Question

On January 1, Year One, a machine is bought for $100,000 with a 10-year and a $20,000 salvage value. The company uses straight-line depreciation. If the company had used double-declining balance, how much lower would total assets be on the company's December 31, Year Two balance sheet?

$10,000
$12,800
$16,000
$20,000

Answer 1

The total assets would be $4,000 lower on the company's December 31, Year Two balance sheet if double-declining balance method was used instead of straight-line depreciation.

To find out how much lower total assets would be on the company's December 31, Year Two balance sheet if double-declining balance method was used instead of straight-line depreciation, we need to calculate the depreciation expense using double-declining balance method for Year One and Year Two.

For Year One, the depreciation expense would be calculated as (2/10) * $100,000 = $20,000. The book value at the end of Year One would be $100,000 - $20,000 = $80,000.

For Year Two, the depreciation expense would be calculated as (2/10) * $80,000 = $16,000.

The difference in total assets between straight-line depreciation and double-declining balance method on December 31, Year Two would be $20,000 - $16,000 = $4,000 lower using double-declining balance method.