Question

On May 1,2022 , X. Benedict Farms purchases a new milk separating machine at a cost of $18,000. The machine is estimated to have a 5 -year useful life, and a $2,400 salvage value at the end of its useful life. If X. Benedict Farms uses double-declining balance, what is the net book value of the milk separating machine as of December 31, 2022?

Answer 1

The net book value of the milk separating machine as of December 31, 2022, can be calculated using the double-declining balance method. The net book value is $11,760.

Step-by-step explanation:

The net book value of the milk separating machine as of December 31, 2022, can be calculated using the double-declining balance method. This method depreciates an asset at a faster rate in the early years of its useful life, allowing for a higher expense and a lower net book value.

First, we need to calculate the annual depreciation expense. The straight-line depreciation expense is calculated by subtracting the salvage value from the cost of the machine and dividing it by the useful life. In this case, the straight-line depreciation expense is ($18,000 - $2,400) / 5 years = $3,120 per year.Next, we apply the double-declining balance method, which doubles the straight-line rate. The depreciation expense for the first year is $3,120 x 2 = $6,240. To calculate the net book value, we subtract the depreciation expense from the cost of the machine.The net book value of the milk separating machine as of December 31, 2022, is $18,000 - $6,240 = $11,760.