On January 1, 2012, Knapp Corporation acquired machinery at a cost of $750,000. Knapp adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2015 would be
A) $38,400.
B) $54,858.
C) $75,000.
D) $107,142.

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for 2015, we need to first calculate the accumulated depreciation using the double-declining balance method for the first three years (2012-2014).

First-year depreciation = (2/10) x $750,000 = $150,000
Second-year depreciation = (2/10) x ($750,000 - $150,000) = $120,000
Third-year depreciation = (2/10) x ($600,000 - $120,000) = $96,000

Accumulated depreciation at the beginning of 2015 = $150,000 + $120,000 + $96,000 = $366,000.

Now we need to calculate the remaining book value of the machinery as of January 1, 2015. This is calculated as:

$750,000 - $366,000 = $384,000.

We can now use the straight-line method to calculate the depreciation expense for 2015. Since the useful life is still 10 years, and there is no residual value, the annual depreciation expense is:

($750,000 - $0) / 10 years = $75,000 per year.

However, since we are only calculating the depreciation expense for part of the year (January 1, 2015, to December 31, 2015), we need to prorate the depreciation expense based on the number of months in 2015 that the machinery was in use. There are 12 months in a year, so the machinery was in use for 12 - 1 = 11 months of 2015.

Prorated depreciation expense for 2015 = $75,000 x (11/12) = $68,750.

Adding the prorated amount to the accumulated depreciation at the beginning of the year, we get the total depreciation expense for 2015:

$366,000 (accumulated depreciation at beginning of year) + $68,750 (prorated depreciation for 2015) = $434,750.

To summarize, the depreciation expense for 2015 is $68,750, and the correct answer is B.

On January 1, 2012, Knapp Corporation Acquired Machinery at a Cost