Question

In: Economics

A piece of equipment costs ​$18,000 to purchase. It has a useful life of 7years and...

A piece of equipment costs ​$18,000 to purchase. It has a useful life of 7years and will be worth​$1,300

at the end of the useful life. Assume you depreciate the equipment with the 200%Declining Balance​ (DB) method

What is the cummulative depreciation incurred through year six​?

A.16,420

B.16,292

C.16,737

D.15,609

What is the Book Value at the end of year

six​?.

A.​ $1,708.

B.​ $2,563.

C.$1,580.

D.​$2,391.

Solutions

Expert Solution

Answer 1.

The correct answer is Option (D) 15,609

Answer 2.

The correct answer is Option (D) $2,391

Explanation -

Straight-line Depreciation Percentage = 100 / Asset Life = 100 / 7 = 14.29%

Double Declining Percentage = 14.29 * 2 = 28.57%

Therefore,

Depreciation in Year 1 = 18000 * 28.57% = $5143

Book Value at end of Year 1 = 18000 - 5143 = $12,857

Depreciation in Year 2 = 12857 * 28.57% = $3673

Book Value at end of Year 2 = 12857 - 3673 = $9184

Depreciation in Year 3 = 9184 * 28.57% = $2624

Book Value at end of Year 3 = 9184 - 2624 = $6560

Depreciation in Year 4 = 6560 * 28.57% = $1874

Book Value at end of Year 4 = 6560 - 1874 = $4686

Depreciation in Year 5 = 4686 * 28.57% = $1339

Book Value at end of Year 5 = 4686 - 1339 = $3347

Depreciation in Year 6 = 3347 * 28.57% = $956

Book Value at end of Year 6 = 3347 - 956 = $2,391

Accumulated Depreciation Through Year 6 = 5143 + 3673 + 2624 + 1874 + 1339 + 956

Accumulated Depreciation Through Year 6 = $15,609

Rahul Sunny answered 1 year ago
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