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8 May, 03:57

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

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  1. 8 May, 07:36
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    The balance of the Accumulated Depreciation account at the end of 2021 is $26,880

    Explanation:

    Under the straight-line method, useful life is 5 years, so the asset's annual depreciation will be 20% of the Depreciable cost.

    Depreciable cost = Total asset cost - salvage value = $56,000-$14,000 = $42,000

    Under the double-declining-balance method the 20% straight line rate is doubled to 40% - multiplied times the Depreciable cost's book value at the beginning of the year.

    Depreciation expense for 2020 = 40% x $42,000 = $16,800

    At the beginning 2021, the Depreciable cost's book value is $42,000-$16,800 = $25,200

    Depreciation expense for 2021 = 40% x $25,200 = $10,080

    The balance of the Accumulated Depreciation account at the end of 2021 = $16,800 + $10,080 = $26,880
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