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.The machine's book value at the end of year 2 is:
A)$12,000.
B)$7,200.
C)$9,600.
D)$8,640.
E)$14,400.

Question

Quizplus · Accepted Answer

To calculate the book value of the machine at the end of year 2 using double-declining-balance method, we need to follow these steps:

1. Calculate the straight-line depreciation rate = 1 / useful life = 1 / 5 = 0.2
2. Calculate the double-declining-balance depreciation rate = straight-line rate x 2 = 0.2 x 2 = 0.4
3. Calculate the depreciation expense for year 1 = cost x double-declining-balance rate = $24,000 x 0.4 = $9,600
4. Calculate the accumulated depreciation for year 1 = depreciation expense for year 1 = $9,600
5. Calculate the book value at the end of year 1 = cost - accumulated depreciation for year 1 = $24,000 - $9,600 = $14,400
6. Calculate the depreciation expense for year 2 = book value at the end of year 1 x double-declining-balance rate = $14,400 x 0.4 = $5,760
7. Calculate the accumulated depreciation for year 2 = accumulated depreciation for year 1 + depreciation expense for year 2 = $9,600 + $5,760 = $15,360
8. Calculate the book value at the end of year 2 = cost - accumulated depreciation for year 2 = $24,000 - $15,360 = $8,640

Therefore, the answer is D) $8,640.

Mohr Company Purchases a Machine at the Beginning of the Year