In: Accounting
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.
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