An asset has a cost of $70,000 with a residual value of $14,000. It has a life of 5 years and was purchased on January 1. Its fourth full year of depreciation expense under double-declining-balance will be: (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)
A)$10,080.
B)$6,048.
C)$1,120.
D)$0.

Question

Quizplus · Accepted Answer

Under the double-declining-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: $70,000 * 40% = $28,000. Year 2: ($70,000 - $28,000) * 40% = $16,800. Year 3: ($70,000 - $28,000 - $16,800) * 40% = $10,080. Year 4: ($70,000 - $28,000 - $16,800 - $10,080) * 40% = $6,048. However, the book value cannot go below the residual value of $14,000. After year 3, the book value is $15,120, so the depreciation for year 4 is $15,120 - $14,000 = $1,120.

An Asset Has a Cost of $70,000 with a Residual