Barnes Company purchased a machine on April 4, 2011, for $210,000. The machine had an estimated useful life of five years and a salvage value of $30,000. The machine is being depreciated using the double-declining-balance method. Barnes depreciates its assets from the first day of the month nearest the date of purchase. The asset balance, net of accumulated depreciation, at December 31, 2012, should be:
A) $105,600
B) $75,600
C) $88,200
D) $94,800

Question

Quizplus · Accepted Answer

First, we need to calculate the annual depreciation expense:

Double-declining-balance rate = 2 / useful life

DD rate = 2 / 5 = 40%

Year 1 depreciation expense = Beginning book value × DD rate = $210,000 × 40% = $84,000

Year 2 depreciation expense = Beginning book value - Accumulated depreciation Year 1 × DD rate = ($210,000 - $84,000) × 40% = $50,400

Now we can calculate the asset balance at December 31, 2012:

Depreciation expense for 2012 = $50,400

Accumulated depreciation at December 31, 2011 = $84,000

Accumulated depreciation at December 31, 2012 = $84,000 + $50,400 = $134,400

Book value at December 31, 2012 = $210,000 - $134,400 = $75,600

Therefore, the correct answer is (C) $88,200.

Barnes Company Purchased a Machine on April 4, 2011, for $210,000