Question

Hamill Company purchased equipment on January 3rd, 2022, for $70,000. The equipment is expected to be used for four years and 12,000 hours (4,000 hours in the first year, 3,000 hours in year 2, and 2,500 per year for each of the last two years). Hamill hopes to sell the asset for $5,000 at the end of its useful life. Using the double-declining-balance method of depreciation, what amount of depreciation expense will Hamill report on the income statement for the year ended December 31st, 2022

Answer 1

To calculate the first year's depreciation using the double-declining-balance method, multiply the book value of $65,000 by the depreciation rate of 50%, resulting in a depreciation expense of $32,500 for the year ended December 31st, 2022.

Step-by-step explanation:

The equipment's book value at the beginning of the year is the cost minus any salvage value, which is $70,000 - $5,000 = $65,000. The double-declining-balance method of depreciation means we depreciate the asset at twice the straight-line rate. The straight-line depreciation rate is 1 divided by the useful life in years, which in this case is 1/4 or 25% per year. Therefore, the double-declining rate is 25% * 2 = 50% per year.

For the first year's depreciation, you multiply the book value by this rate. The calculation for the year ended December 31st, 2022, would then be $65,000 * 50% = $32,500 in depreciation expense.

Answer 2

Annual depreciation= $32,500

Step-by-step explanation:

Giving the following information:

Purchase price= $70,000

Salvage value= $5,000

Useful life= 4 years

To calculate the annual depreciation under the double-declining-balance method, we need to use the following formula:

Annual depreciation= 2*[(book value)/estimated life (years)]

2022:

Annual depreciation= 2*[(70,000 - 5,000) / 4]

Annual depreciation= $32,500