A company purchased equipment for $110,000 that is expected to have a useful life of 5...

A company purchased equipment for $110,000 that is expected to have a useful life of 5 years and a salvage value of $10,000. If double declining balance depreciation is used, what is the accumulated depreciation at the end of Year 2?

		$74,000
		$60,000
		$70,400

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Expert Solution

Answer is $70,400

Cost of Equipment = $110,000
Salvage Value = $10,000
Useful Life = 5 years

Straight-line Depreciation Rate = 1 / Useful Life
Straight-line Depreciation Rate = 1 / 5
Straight-line Depreciation Rate = 20%

Double-declining Depreciation Rate = 2 * Straight-line Depreciation Rate
Double-declining Depreciation Rate = 2 * 20%
Double-declining Depreciation Rate = 40%

Year 1:

Beginning Book Value = $110,000

Depreciation Expense = 40% * $110,000
Depreciation Expense = $44,000

Ending Book Value = Beginning Book Value - Depreciation Expense
Ending Book Value = $110,000 - $44,000
Ending Book Value = $66,000

Year 2:

Beginning Book Value = $66,000

Depreciation Expense = 40% * $66,000
Depreciation Expense = $26,400

Ending Book Value = Beginning Book Value - Depreciation Expense
Ending Book Value = $66,000 - $26,400
Ending Book Value = $39,600

Accumulated Depreciation, Year 2 = Depreciation Expense, Year 1 + Depreciation Expense, Year 2
Accumulated Depreciation, Year 2 = $44,000 + $26,400
Accumulated Depreciation, Year 2 = $70,400

jeff jeffy answered 1 year ago

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