Final answer:
Under the double declining balance method, the depreciation expense in year 2 is $38,400. The book value at the beginning of year 2 is multiplied by the doubled depreciation rate. The correct answer is C. $38,400.
Step-by-step explanation:
Under the double declining balance method, the depreciation expense is calculated by taking the straight-line depreciation rate (which is 1 divided by the useful life) and doubling it. In this case, the straight-line depreciation rate is 1/5, so the doubled rate is 2/5 or 40%.
To calculate the depreciation expense in year 2, you take the book value at the beginning of the year (which is the cost minus the accumulated depreciation from the previous year) and multiply it by the doubled rate.
For the given machine, the book value at the beginning of year 2 would be $160,000 - $64,320 (depreciation in year 1) = $95,680. Multiplying this by 40% gives a depreciation expense of $38,272 which rounds to $38,400. Therefore, the correct answer is C. $38,400.