Question

Beckman Enterprises purchased a depreciable asset on October 1. Year 1 at a cost of $100.000. The asset is expected to have a salvage value of $15.000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31. Year 2 will be: Multiple Choice $18,360 $21,600 $27540 $54,000 $90,000

Answer 1

Answer is $54,000

Cost of Asset = $100,000
Salvage Value = $15,000
Useful Life = 5 years

Straight-line Depreciation Rate = 1 / Useful Life
Straight-line Depreciation Rate = 1 / 5
Straight-line Depreciation Rate = 20%

Double-declining Depreciation Rate = 2 * Straight-line Depreciation Rate
Double-declining Depreciation Rate = 2 * 20%
Double-declining Depreciation Rate = 40%

October 1, Year 1 to September 30, Year 2:

Beginning Book Value = $100,000

Depreciation Expense = 40% * $100,000
Depreciation Expense = $40,000

Ending Book Value = $100,000 - $40,000
Ending Book Value = $60,000

October 1, Year 2 to December 31, Year 2:

Beginning Book Value = $60,000

Depreciation Expense = 40% * $60,000 * 3/12
Depreciation Expense = $6,000

Ending Book Value = $60,000 - $6,000
Ending Book Value = $54,000