Question

Kegging & Canning Inc. acquired equipment on June 30, 2013, for $175,000. The residual value is $35,000 and the estimated life is 5 years or 40,000 hours. Compute the balance in Accumulated Depreciation as of December 31, 2015, if Kegging & Canning Inc. uses the double-declining-balance method of depreciation.

a) $99,680
b) $105,840
c) $117,600
d) $124,600

Answer 1

To compute the balance in Accumulated Depreciation using the double-declining-balance method, we need to calculate the depreciation expense for each year. The balance in Accumulated Depreciation as of December 31, 2015, is $137,200. The correct answer is option d) $124,600.

Step-by-step explanation:

To compute the balance in Accumulated Depreciation using the double-declining-balance method, we first need to calculate the depreciation expense for each year. The formula to calculate depreciation expense using the double-declining-balance method is:

Depreciation expense = (Book value at the beginning of the year) x (Double-declining-balance rate)

The double-declining-balance rate is calculated as:

Double-declining-balance rate = (1 / Estimated life) x 2

In this case:

Double-declining-balance rate = (1 / 5 years) x 2 = 0.4 = 40%

Now we can calculate the depreciation expense for each year:

1. Year 1: Depreciation expense = ($175,000 - $0) x 40% = $70,000
2. Year 2: Depreciation expense = ($175,000 - $70,000) x 40% = $42,000
3. Year 3: Depreciation expense = ($175,000 - $70,000 - $42,000) x 40% = $25,200

To find the balance in Accumulated Depreciation as of December 31, 2015, we add up the depreciation expenses for each year:

Balance in Accumulated Depreciation = $70,000 + $42,000 + $25,200 = $137,200

Therefore, the correct answer is option d) $124,600.