Question

A company uses the declining-balance method of calculating depreciation expense.On January 1, the company buys machinery for $750,000. The machinery has a salvage value of $100,000 and an estimated service life of 10 years.What is the book value in Year 3?

Answer 1

Book value for the 3rd year = $ 750,000 - $366,000 = $ 384,000

Step-by-step explanation:

Straight line rate= 100 % ÷ Useful Life = 100 ÷ 10= 10 %

Double Declining rate = 2 * Straight Line rate= 2 * 10= 20 %

Depreciation expense= Double declining balance rate * Beginning period book value

Depreciation expense for the first year = 20 % $ 750,000= $ 150,000

Book value for the first year = $ 750,000 - $ 150,000= $ 600,000

Depreciation expense for the 2nd year = 20 % $ 600,000= $ 120,000

Book value for the 2nd year = $ 750,000 - $ 270,000= $ 480,000

Depreciation expense for the 3rd year = 20 % $ 480,000= $ 96,000

Book value for the 3rd year = $ 750,000 - $366,000 = $ 384,000