Mohr Company purchases a machine at the beginning of the year at a cost of $24,000.The machine is depreciated using the double-declining-balance method.The machine's useful life is estimated to be 5 years with a $4,000 salvage value.Depreciation expense in year 2 is:
A)$4,800.
B)$8,000.
C)$9,600.
D)$5,760.
E)$14,400.

Question

Quizplus · Accepted Answer

Step 1: Calculate the depreciation rate
Depreciation rate = 2 / useful life = 2 / 5 = 0.4 or 40%

Step 2: Calculate the depreciation expense for year 1
Depreciation expense year 1 = (cost - salvage value) x depreciation rate = ($24,000 - $4,000) x 0.4 = $8,000

Step 3: Calculate the book value at the end of year 1
Book value at the end of year 1 = Cost - Depreciation expense year 1 = $24,000 - $8,000 = $16,000

Step 4: Calculate the depreciation expense for year 2 using the book value at the beginning of the year
Depreciation expense year 2 = Book value at the beginning of year 2 x depreciation rate
Book value at the beginning of year 2 = Book value at the end of year 1 = $16,000
Depreciation expense year 2 = $16,000 x 0.4 = $6,400
However, since the machine cannot be depreciated below its salvage value of $4,000, the depreciation expense for year 2 is limited to $16,000 - $4,000 - $8,000 = $4,000
Therefore, the correct answer is D) $5,760.

Mohr Company Purchases a Machine at the Beginning of the Year