On January 1, Year 1, a machine with a useful life of 5 years and a residual value of $1,000 was purchased for $20,000. What is the depreciation expense in Year 2 under the double diminishing-balance method?
A) $4,800
B) $4,560
C) $3,200
D) $3,040

Question

Quizplus · Accepted Answer

Under the double diminishing-balance method, the depreciation rate is double the straight-line rate. The straight-line rate is 1/5 = 20%, so the double rate is 40%. Year 1 depreciation is 40% of $20,000 = $8,000. The book value at the start of Year 2 is $20,000 - $8,000 = $12,000. Year 2 depreciation is 40% of $12,000 = $4,800.

On January 1, Year 1, a Machine with a Useful