Question

33. ABC Company purchased equipment on January 1, 2009 for $72,000. It was estimated that the equipment would have a $5,000 salvage value at the end of its 5-year useful life. It was also estimated that the equipment would produce 100,000 units over its 5-year life. If the company used the double-declining balance method of depreciation, what was the balance of the Accumulated Depreciation of the equipment at December 31, 2011?* (3 Points) some other amount $44,800 $54,880 $56,480

Answer 1

Accumulated depreciation account balance as on Dec 31, 2011 = $54880

Solution :

Annual depreciation under straight line method = (cost - salvage)/useful life

= ($72000-$5000)/5

= $67000/5

= $13400 per year

Rate of depreciation under straight line method = per annum depreciation /cost

= $13400/$72000

= 0.1861

That means 18.61%

Rate of depreciation under double declining balance method = rate of depreciation under straight line method × 2

= 18.61%×2

= 37.22%

Depreciation under double declining balance method = (cost - accumulated depreciation) × rate

Year 1 = ($72000-$0)×37.22%

= $26800

Year 2 = ($72000-$26800)×37.22%

= $45200×37.22%

= $16824

Year 3 = ($72000-$26800-$16824)×37.22%

= $28376×37.22%

= $10562

Accumulated depreciation account balance as Dec 31, 2011 = sum of depreciation of all three years

= $26800+$16824+$10562

= $54186

This is near to amount $54880. The difference is because of not rounding off the rate of depreciation under double declining balance method to 38%. If it is rounded off to 38% then accumulated depreciation comes near to $54880