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On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.

-Assuming the company uses the double-declining-balance depreciation method,what are the amounts of depreciation expense and accumulated depreciation,respectively,that would be reported in the financial statements prepared as of December 31,Year 3?
A)$0 and $24,000
B)$960 and $12,000
C)$8,640 and $23,040
D)$5,184 and $28,224

Question

[The following information applies to the questions displayed below.]

On January 1, Year 1, Jing Company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.

-Assuming the company uses the double-declining-balance depreciation method,what are the amounts of depreciation expense and accumulated depreciation,respectively,that would be reported in the financial statements prepared as of December 31,Year 3?
A)$0 and $24,000
B)$960 and $12,000
C)$8,640 and $23,040
D)$5,184 and $28,224

Quizplus · Accepted Answer

Cost = $34,000 + $2,000 = $36,000
Double-declining-balance rate = (1 ÷ 5)× 2 = 40%
Year 1 depreciation expense = Book value at beginning of year of $36,000 × 40% = $14,400
Book value at end of Year 1 = Cost of $36,000 -Accumulated depreciation of $14,400 = $21,600
Year 2 depreciation expense = Book value at beginning of year of $21,600 × 40% = $8,640
Book value at end of Year 2 = Cost of $36,000 - Accumulated depreciation of ($14,400 + $8,640)= $12,960
Recall that an asset cannot be depreciated below its salvage value.Initially,Year 3 depreciation expense would equal $5,184 (or $12,960 × 40%),which would reduce the book value to $7,776 (or $12,960 - $5,184),which is less than its salvage value of $12,000.
Year 3 Depreciation expense = Salvage value of $12,000 - book value at beginning of Year 3 of $12,960 = $960
Book value at end of Year 3 = Cost of $36,000 -Accumulated depreciation of ($14,400 + $8,640 + $960)= $12,000

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