Cutter Enterprises purchased equipment for $96,000 on January 1, 2021. The equipment is expected to have...

Cutter Enterprises purchased equipment for $96,000 on January 1, 2021. The equipment is expected to have a five-year life and a residual value of $6,600. Using the double-declining-balance method, the book value at December 31, 2022, would be:

Multiple Choice

a) $19,200.

b) $34,560.

c) $35,760.

d) $33,660.

Solutions

Expert Solution

Answer: B - $34,560

The book value at December 31, 2022.We can compute it by reducing Year 1 (2021) depreciation and Year 2 (2022) depreciation from the cost of the asset.

Cost of the asset = $96,000

Estimated residual value = $6,600

Useful life of the asset = 5 years

Double-declining-balance method

Depreciation under Double-declining-Balance (Year1)

= 2 * Cost of the Asset * (1 / useful life of the asset)

Year 1 (2021) = 2 * $96,000 * (1/5) = 2 * $96,000 * 0.20 = $38,400

Depreciation under Double-declining-Balance (Remaining years)

= 2 * Net Book Value * (1 / useful life of the asset)

Net Book value = Cost of the asset - Accumulated Depreciation = $96,000 - $38,400 = $57,600

Year 2 (2022) = 2 * $57,600 * (1/5) = 2 * $57,600 * 0.20 = $23,040

Net Book value = Cost of the asset - Accumulated Depreciation = $96,000 - $38,400 - $23,040 = $34,560

So, Book value at December 31,2022 = $34,560

ekkarill92 answered 1 year ago

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