Question

Slovac Company purchased a machine that has an estimated useful life of eight years for $7,500. Its salvage value is estimated at $500. What is the depreciation for the second year of the asset's life, assuming Slovac uses the double-declining-balance method of depreciation?

a) $1,406
b) $1,438
c) $1,875
d) $3,750

Answer 1

The second year's depreciation for Slovac Company using the double-declining-balance method is $1,406.25, with the closest answer being $1,406.

Step-by-step explanation:

The depreciation for the second year of the asset's life, assuming Slovac uses the double-declining-balance method of depreciation, can be calculated as follows: The double-declining balance depreciation rate is 2 divided by the useful life of the asset, which is 8 years in this case. So, the rate is 2/8 or 25%. To calculate the depreciation for the second year, we apply this rate to the book value of the asset at the beginning of the second year. The book value at the beginning of the first year would be the cost of the asset minus any accumulated depreciation. Since this is the second year, we need to account for the first year's depreciation before calculating the second year's.

The first year's depreciation would be 25% of $7,500, which is $1,875. So the book value at the beginning of the second year is $7,500 - $1,875 = $5,625. Now, the second year's depreciation is 25% of $5,625, which is $1,406.25.

The closest answer would be option a) $1,406.