Cutter Enterprises purchased equipment for $60,000 on January 1, 2021. The equipment is expected to have...

Cutter Enterprises purchased equipment for $60,000 on January 1, 2021. The equipment is expected to have a five-year life and a residual value of $5,400. Using the double-declining-balance method, the book value at December 31, 2022, would be:

Expert Solution

The expected life of the equipment is 5 years.

The depreciation percentage will be -

used in the double declining balance method= (100%/5) * 2 = 40%

(normal depreciation percentage will be 100/5= 20%. Because we are using double declining balance method the depreciation percentage will be double)

Depreciation of the equipment for the year 2021 by double declining balance method = Purchase cost of equipment (book value) * Depreciation percentage

= $ 60000 * 40%= $ 24000

Net book value of the equipment as on December 31, 2021

= Book value of the equipment – Depreciation for 2021

= $ 60000 -$24000 = $ 36000

Depreciation of the equipment for the year 2022

= Net book value of the equipment as on December 31, 2021 * Depreciation percentage

= $36000 *40% = $ 14400

Book value of the equipment at December 31, 2020

= book value of the equipment as on December 31, 2021 - Depreciation of the equipment for the year 2022

= $36000 - $ 14400 = $ 21600.

ekkarill92 answered 1 year ago

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