Farr Company purchased a new van for floral deliveries on January 1, 2020. The van cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the balance of the Accumulated Depreciation account at the end of 2021?Group of answer choices$13,440$8,960$26,880$35,840
Question
Farr Company purchased a new van for floral deliveries on January 1, 2020. The van cost 14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the balance of the Accumulated Depreciation account at the end of 2021?Group of answer choices8,96035,840
Solution
To calculate the balance of the Accumulated Depreciation account at the end of 2021 using the double-declining-balance method, we need to determine the annual depreciation expense for the van.
First, we need to calculate the straight-line depreciation rate. This is done by dividing the difference between the cost of the van and its salvage value by its useful life. In this case, the difference is 14,000 = 42,000 / 5 = $8,400 per year.
Next, we need to calculate the double-declining-balance depreciation rate. This is done by multiplying the straight-line depreciation rate by 2. In this case, the double-declining-balance depreciation rate is 16,800 per year.
To calculate the depreciation expense for 2021, we need to multiply the double-declining-balance depreciation rate by the number of years the van has been in service. Since the van was purchased on January 1, 2020, it has been in service for 2 years in 2021. Therefore, the depreciation expense for 2021 is 33,600.
Finally, to calculate the balance of the Accumulated Depreciation account at the end of 2021, we need to add the depreciation expense for 2021 to the previous balance of the account. Since we are given that this is the end of 2021, we assume there is no previous balance. Therefore, the balance of the Accumulated Depreciation account at the end of 2021 is $33,600.
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