Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $164,000. The asset is expected to have a salvage value of $16,600 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:Multiple Choice$48,276$35,424$88,560$32,184$147,600
Question
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of 16,600 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:Multiple Choice35,42432,184$147,600
Solution
To calculate the book value of the asset on December 31, Year 2 using the double-declining-balance method, follow these steps:
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Determine the straight-line depreciation rate. This is 1 divided by the useful life of the asset. In this case, 1/5 = 0.2 or 20%.
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Double the straight-line rate. In this case, 2 * 20% = 40%.
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Apply the double-declining-balance rate to the book value of the asset at the beginning of each year.
For Year 1 (October 1 to December 31), the asset is only in service for 3 months, or 1/4 of the year. So, the depreciation expense for Year 1 is: 16,400. The book value at the end of Year 1 is the original cost minus the Year 1 depreciation: 16,400 = $147,600.
For Year 2, apply the double-declining-balance rate to the book value at the beginning of Year 2 (147,600 * 40% = 147,600 - 88,560.
So, the asset's book value on December 31, Year 2 is $88,560.
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