Question

On January 2, 2016, McNally's Extra Corporation acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2017, if McNally's Extra Corporation uses the double-declining-balance method of depreciation?

a) $36,000
b) $23,200
c) $43,200
d) $76,800

Answer 1

The balance in Accumulated Depreciation on December 31, 2017, using the double-declining-balance method is $76,800.

Step-by-step explanation:

To calculate the balance in Accumulated Depreciation using the double-declining-balance method, we need to determine the depreciation expense for each year.

The formula for double-declining-balance method is: (Cost - Accumulated Depreciation) x (2 / Useful Life).

For the given equipment, the cost is $120,000, the useful life is 5 years, and the residual value is $20,000. The depreciation rate is (2 / 5) = 0.4.

In the first year, the depreciation expense would be: ($120,000 - $0) x 0.4 = $48,000. The accumulated depreciation after the first year would be $48,000.

In the second year, the depreciation expense would be: ($120,000 - $48,000) x 0.4 = $28,800. The accumulated depreciation after the second year would be $48,000 + $28,800 = $76,800.

Therefore, the balance in Accumulated Depreciation on December 31, 2017, would be $76,800.