Question

Ironworks Industries purchased a piece of equipment for $80,000 with an estimated salvage value of $15,000 on January 1. Its estimated life is 5 years. To the nearest dollar, what is the equipment's depreciation using double-declining-balance for year 2? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A. $19,200

B. $32,000

C. $26,000

D. $13,000

Answer 1

The equipment's depreciation using the double-declining-balance method for year 2 is $19,200, which is calculated by applying a 40% depreciation rate on the year's beginning book value of $48,000.

Step-by-step explanation:

The depreciation of the equipment using the double-declining-balance method for year 2 can be calculated as follows:

First, calculate the depreciation rate. Since the estimated life is 5 years, the straight-line depreciation rate is 1 / 5 or 20%. For the double-declining-balance method, we double the straight-line rate, which results in 40%.

Next, calculate the book value at the beginning of year 2. In the first year, the depreciation would be 40% of $80,000 which equals $32,000. So, the book value at the end of year 1 (also the beginning of year 2) is $80,000 - $32,000 = $48,000.

Now, apply the double-declining rate to the book value at the start of year 2. This results in $48,000 x 40% = $19,200.

Therefore, the depreciation for year 2, rounded to the nearest dollar, is $19,200.