Question

Marlow Company purchased a point of sale system on January 1 for $5,700. This system has a useful life of 10 years and a salvage value of $550. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

a) $848.
b) $515.
c) $1,140.
d) $912.
e) $1,030.

Answer 1

The second year's depreciation expense for the Marlow Company's point of sale system using the double-declining-balance method is $912. This is calculated by applying a 20% depreciation rate on the new book value at the beginning of the second year.

Step-by-step explanation:

The calculation of depreciation using the double-declining-balance method involves a few steps. First, the straight-line depreciation rate must be determined, which is 1 divided by the useful life of the asset. For the Marlow Company’s point-of-sale system, the straight-line rate is 1/10 or 10% per year. The double-declining rate is then 2 times the straight-line rate, which is 20% per year.

In the first year, the depreciation expense would be 20% of the initial cost of $5,700, which is $1,140. However, for the second year, the book value at the beginning of the year would be the initial cost minus the first year's depreciation ($5,700 - $1,140 = $4,560). The second year's depreciation is then 20% of the new book value, which is $912 (20% of $4,560).

Thus, the correct answer to the student’s question is $912, which represents the depreciation expense for the second year of its useful life using the double-declining-balance method. This corresponds to option d).