Question

A machine that cost $170,000 has an estimated residual value of $17,000 and an estimated useful life of four years. The company uses double-declining-balance depreciation.

Calculate its book value at the end of year 3. (Do not round intermediate calculations.)

Answer 1

Sure!

To calculate the book value at the end of year 3 using the double-declining-balance method, we need to follow these steps:

1. Calculate the straight-line depreciation rate:

Depreciation rate = 1 / Estimated useful life
Depreciation rate = 1 / 4
Depreciation rate = 0.25 or 25%

2. Calculate the double-declining-balance depreciation rate:

Depreciation rate = 2 x Straight-line depreciation rate
Depreciation rate = 2 x 25%
Depreciation rate = 50%

3. Calculate the accumulated depreciation for the first 3 years:

Year 1: Depreciation expense = Beginning book value x Depreciation rate = $170,000 x 50% = $85,000
Accumulated depreciation after Year 1 = $85,000

Year 2: Depreciation expense = Beginning book value x Depreciation rate = ($170,000 - $85,000) x 50% = $42,500
Accumulated depreciation after Year 2 = $85,000 + $42,500 = $127,500

Year 3: Depreciation expense = Beginning book value x Depreciation rate = ($170,000 - $127,500) x 50% = $21,250
Accumulated depreciation after Year 3 = $127,500 + $21,250 = $148,750

4. Calculate the book value at the end of Year 3:

Book value at end of Year 3 = Beginning book value - Accumulated depreciation
Book value at end of Year 3 = $170,000 - $148,750
Book value at end of Year 3 = $21,250

Therefore, the book value at the end of Year 3 is $21,250.