Question

Halltown Company purchased a depreciable asset for $450,000. The estimated salvage value is $30,000, 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 second year's depreciation expense for Halltown Company's asset using the double-declining balance method is $84,375, calculated by applying 25% to the book value at the start of the second year ($337,500).

Step-by-step explanation:

The depreciation expense for the second year on a depreciable asset using the double-declining balance method can be calculated as follows. The asset's initial cost is $450,000 with an estimated salvage value of $30,000 and an estimated useful life of 8 years.

In the first year, the depreciation expense is calculated by doubling the straight-line rate (which is 1/8, or 12.5%) and applying it to the asset's book value. Thus, the first year's depreciation is 25% of $450,000, which equals $112,500. The book value at the end of the first year is $450,000 - $112,500 = $337,500.

For the second year, we again apply double the straight-line rate (25%) to the book value at the beginning of the year, which is $337,500. Thus, the second year's depreciation expense is 25% of $337,500, equating to $84,375.