Question

Sale of equipment

Equipment was acquired at the beginning of the year at a cost of $800,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 10 years and an estimated residual value of $60,000.
Question Content Area. What was the depreciation for the first year?

Answer 1

The depreciation for the first year using the double-declining-balance method is 20% of the equipment's initial cost of $800,000, resulting in a depreciation amount of $160,000.

Step-by-step explanation:

The question at hand requires the calculation of the first year's depreciation for equipment that was originally purchased at a cost of $800,000, using the double-declining-balance method of depreciation. To compute this, take the book value of the equipment at the beginning of the year, which is its cost ($800,000), and subtract any salvage value ($60,000). This leaves us with a depreciable base of $740,000.

Since the method is double-declining-balance, you would double the straight-line depreciation rate. The straight-line depreciation rate is 1 divided by the useful life (1 / 10 years = 10%), so for the double-declining-balance, the rate is 20%. Apply this rate to the book value of the equipment (without subtracting the salvage value).

Therefore, the first year's depreciation expense is 20% of $800,000, which equals $160,000. This value represents the depreciation for the first year using the double-declining-balance method.