Question

A Kubota tractor acquired on January 8 at a cost of $90,000 has an estimated useful life of 10 years. Assuming that it will have no residual value, determine the depreciation for each of the first 2 years (a) by the straight-line method and (b) by the double-declining-balance method.

A) Detailed calculations are needed to answer.

B) No depreciation in the first year.

C) $9,000 for the first year and $8,100 for the second year.

D) $18,000 for the first year and $16,200 for the second year.

Answer 1

The depreciation for each of the first 2 years by the straight-line method is $9,000, and by the double-declining-balance method, it is $18,000 for the first year and $16,200 for the second year.

Step-by-step explanation:

To determine the depreciation for each of the first 2 years by the straight-line method, we divide the cost of the tractor ($90,000) by its useful life (10 years). The annual depreciation is $9,000 for each of the first 2 years. To determine the depreciation by the double-declining-balance method, we use a depreciation rate that is twice the straight-line rate. The straight-line rate is $9,000 per year ($90,000/10 years), so the double-declining-balance rate is $18,000 per year. The depreciation for the first year is $18,000, and for the second year, it is $16,200 (double-declining-balance rate multiplied by the remaining book value).