Question

Halltown Company purchased a depreciable asset for $600,000. The estimated salvage value is $40,000 and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

Answer 1

The depreciation expense for the second year using the double-declining balance method is $112,500. This is calculated by applying a 25% rate to the book value at the beginning of the second year, which is $450,000 after the first year's depreciation.

Step-by-step explanation:

The depreciation expense for the second year using the double-declining balance method can be calculated by applying the double-declining balance rate to the book value of the asset at the beginning of the second year.

• First, we need to calculate the double-declining balance rate. Since the estimated useful life is 8 years, the straight-line depreciation rate would be 1 / 8, or 12.5%. Therefore, the double-declining rate is 2 × 12.5%, which equals 25%.
• For the first year, the depreciation expense would be 25% of the initial cost ($600,000), resulting in a $150,000 expense.
• The book value at the end of the first year is therefore $600,000 - $150,000 = $450,000.
• For the second year, we apply the 25% rate to the book value at the beginning of the year ($450,000), so the depreciation expense for the second year is 25% of $450,000, which equals $112,500.