Question

Z Company purchased an asset for $24,000 on January 1, Year 1. The asset was expected to have a four-year life and a $4,000 salvage value. What is the amount of depreciation expense for Year 1 using the double-declining-balance?

A. $2,000
B. $3,000
C. $6,000
D. $12,000

Answer 1

The depreciation expense for Year 1 using the double-declining-balance method for an asset with an initial cost of $24,000, a four-year life, and a $4,000 salvage value is $12,000.

Step-by-step explanation:

To calculate the depreciation expense for Year 1 using the double-declining-balance method, follow these steps:

1. Determine the asset's initial cost, which is $24,000.
2. Calculate the straight-line depreciation rate, which is 1 divided by the useful life of the asset. Since the asset has a four-year life, this rate is 1/4, or 25% per year.
3. Since we are using the double-declining-balance method, we double the straight-line rate. Therefore, the double-declining rate is 25% * 2 = 50%.
4. Apply this rate to the asset's book value at the beginning of Year 1 (which is its initial cost), to calculate the depreciation expense for Year 1. This results in a depreciation expense of $24,000 * 50% = $12,000.

Therefore, the correct answer is D. $12,000.