Question

A company purchased factory equipment for $740000. It is estimated that the equipment will have a $73000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be

Answer 1

the amount of annual depreciation recorded for the second year after purchase will be $177,600

Step-by-step explanation:

In the double-declining method of depreciation, the rate of depreciation is double of the straight-line rate.

First, we need to calculate the straight-line rate

Straight-line rate = 1 / useful life = 1 / 5 = 20%

Double Declining rate = 20% x 2 = 40%

First year's Depreciation = Book value x Double declining rate

First year's Depreciation = 740,000 x 40% = $296,000

Net Book Value = $740,000 - $296,000 = $444,000

Second Year's depreciation = $444,000 x 40% = $177,600

Net Book Value = $444,000 - $177,600 = $266,400