Question

Pebble Beach Co. buys a piece of equipment for $54,000. The equipment has a useful life of three years. No residual value is expected at the end of the useful life. Using the double-declining-balance method, what is the company's depreciation expense in the first year of the equipment's useful life?

Answer 1

Using the double-declining-balance method, the depreciation expense for the first year of the equipment, which cost $54,000 and has a three-year useful life, is $36,000.

Step-by-step explanation:

The question asks about calculating the depreciation expense for the first year of a piece of equipment using the double-declining-balance depreciation method. The cost of the equipment is $54,000 with a useful life of three years, and no residual value is expected at the end of its useful life. To calculate the depreciation expense for the first year using the double-declining-balance method, we first determine the straight-line depreciation rate which is 1 divided by the useful life (1/3 or 33.33% for this equipment). We then double this rate for the double-declining method, getting 66.66%. The first year's depreciation expense is then 66.66% of the book value at the beginning of the year. As the equipment is new, the book value is its initial cost, so the depreciation expense for the first year is 66.66% of $54,000, which is $36,000.