A company bought a piece of equipment for $40,000 and expects to use it for eight years.The company then plans to sell it for $3,500.The company has already recorded depreciation of $35,995.Using the double-declining-balance method,what is the company's annual depreciation expense for the upcoming year?
A)$1,001
B)$9,125
C)$505
D)$10,000

Question

Quizplus · Accepted Answer

Depreciation expense = Book value × (2 ÷ Useful life)
Initial calculation:
Depreciation expense = (Cost − Accumulated depreciation)× (2 ÷ Useful life)
= ($40,000 − $35,995)× 2 / 8 = $1,001.25 (rounded to $1,001)
Book value at end of the upcoming year = ($40,000 − $35,995 − $1,000)= $3,005,which is less than the residual value of $3,500.Recording this amount of depreciation expense in the upcoming year would cause the book value to drop below the residual value.
Revised calculation:
Depreciation expense = Beginning book value of $4,005 (or Cost of $40,000 − Accumulated depreciation of $35,995)− residual value of $3,500 = $505

A Company Bought a Piece of Equipment for $40,000 and Expects