Question

Moreno Company purchased equipment for $900,000 on January 1, 2017, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $40,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2019 will be

a.$100,000.

b.$60,000.

c.$108,880.

Answer 1

The depreciation expense for the year 2019 using the double-declining balance method for Moreno Company's equipment is $0, as the book value has reached the salvage value in the previous year.

Step-by-step explanation:

The question is asking to calculate the depreciation expense for the year 2019 using the double-declining-balance method for a piece of equipment. To compute the depreciation expense for 2019, we start by calculating the annual depreciation rate. Given a 3-year life, the straight-line depreciation rate would be 1/3 (or 33.33%), but since we are using the double-declining-balance method, we double that rate to get 66.66%. We apply this rate to the book value at the beginning of each year minus the salvage value.

First-year depreciation (2017): $900,000 * 66.66% = $600,000
After the first year, the book value is $900,000 - $600,000 = $300,000
Second-year depreciation (2018): $300,000 * 66.66% = $200,000 (but capped to reduce to salvage value, hence $260,000)
The book value at the beginning of 2019 is $40,000 (salvage value).

Considering the salvage value has been reached, we cannot depreciate the asset further. Therefore, the depreciation expense for 2019 is $0. None of the provided options (a. $100,000, b. $60,000, c. $108,880) are correct.

Answer 2

b.$60,000.

Step-by-step explanation:

First we have to find the depreciation rate which is shown below:

= One ÷ useful life

= 1 ÷ 3

= 33.33%

Now the rate is double So, 66.66%

In year 1, the original cost is $900,000, so the depreciation is $600,000 after applying the 66.66% depreciation rate

And, in year 2, the $200,000 ($900,000 - $600,000) × 66.66%

And, in year 3 it is ($100,000 - $40,000) = $60,000

The $100,000 is come from

= $900,000 - $600,000 - $200,000

= $100,000