Equipment was purchased for $18,000.It has a useful life of 5 years and a residual value of $2,000.What is depreciation expense for year one under the double-declining-balance method?
A)$6,400
B)$3,200
C)$7,200
D)$3,600

Question

Quizplus · Accepted Answer

To use the double-declining-balance method, we first need to calculate the straight-line depreciation rate:

Straight-line depreciation rate = (cost - residual value) / useful life
= ($18,000 - $2,000) / 5 years
= $3,200 per year

The double-declining-balance rate is twice the straight-line rate, or $6,400 per year:

Double-declining-balance rate = 2 x straight-line rate
= 2 x $3,200
= $6,400 per year

Depreciation expense in year one is calculated as:
Depreciation expense = beginning book value x double-declining-balance rate
= $18,000 x 2 / 5
= $7,200

Therefore, the best choice is C, $7,200.

Equipment Was Purchased for $18,000