Question

Depreciation by Two Methods A storage tank acquired at the beginning of the fiscal year at a cost of $80,000 has an estimated residual value of $4,000 and an estimated useful life of 20 years. a. Determine the amount of annual depreciation by the straight-line method. $ b. Determine the amount of depreciation for the first and second years computed by the double-declining-balance method. Do not round the double-declining balance rate. If required, round your answers to the nearest dollar.

Answer 1

a. Annual depreciation = $3,800

b. First year depreciation is $8,000' while second year depreciation is $7,200.

Step-by-step explanation:

a. Determine the amount of annual depreciation by the straight-line method.

Depreciable amount = $80,000 - $4,000 = $76,000

Annual depreciation = $76,000 / 20 = $3,800

b. Determine the amount of depreciation for the first and second years computed by the double-declining-balance method. Do not round the double-declining balance rate. If required, round your answers to the nearest dollar.

Straight line depreciation rate = 1 / 20 = 0.05, or 5%

Double declining depreciation rate = 5% * 2 = 10%

First year depreciation = $80,000 * 10% = $8,000

Second year depreciation = ($80,000 - $8,000) * 10% = $7,200