Question

On October 1, 2018, Holt Company places a new asset into service. The cost of the asset is $120000 with an estimated 5-year life and $30000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2018, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation

Answer 1

$108,000

Step-by-step explanation:

For computing the book value first we have to determine the depreciation expense using the double declining method which is shown below:

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

= One ÷ useful life

= 1 ÷ 5

= 20%

Now the rate is double So, 40%

In year 1, the original cost is $120,000, so the depreciation is $48,000 after applying the 40% depreciation rate

Now the 3 months depreciation i,e (Oct 1 to Dec 31)

= $48,000 × 3 months ÷ 12 months

= $12,000

So, the book value is

= Purchase cost - depreciation expense

= $120,000 - $12,000

= $108,000