Question

A piece of equipment was acquired on January 1, 2015, at a cost of $44,000, with an estimated residual value of $4,000 and an estimated useful life of ten years. The company uses the double-declining-balance method. What is its book value at December 31, 2016?

a. $28,160
b. $8,800
c. $36,000
d. $8,000

Answer 1

The book value of the equipment at December 31, 2016, is $28,160. The correct option is a.

Step-by-step explanation:

To calculate the book value of the equipment at December 31, 2016, we need to determine the accumulated depreciation for the equipment up to that date:

First, find the annual depreciation using the double-declining-balance method:

Depreciation expense = (2 / Useful life) x Book value at the beginning of the year

For 2015:

Depreciation expense = (2 / 10) x $44,000 = $8,800

For 2016:

Depreciation expense = (2 / 10) x ($44,000 - $8,800) = $7,040

The accumulated depreciation at the end of 2016 is the sum of the depreciation expenses for 2015 and 2016:

Accumulated depreciation = $8,800 + $7,040 = $15,840

To find the book value at December 31, 2016, subtract the accumulated depreciation from the cost:

Book value at December 31, 2016 = Cost - Accumulated depreciation = $44,000 - $15,840 = $28,160

Therefore, the answer is $28,160 (option a).