Slovac Company purchased a machine that has an estimated useful life of eight years for $7,500. Its salvage value is estimated at $500. What is the depreciation for the second year of the asset’s life, assuming Slovac uses the double-declining balance method of depreciation? Multiple Choice

A. $1,406

B. $1,438

C. $1,875

D. $3,750

A. 1,406

Explanation:

Double-declining balance formula = 2 X Cost of the asset X Depreciation rate

The cost of asset = $7,500

salvage value = $500

estimated useful life = 8years

To calculate the depreciation value using Double-declining balance formula = 2 X Cost of the asset X Depreciation rate

Depreciation rate = 1/useful life * 100 = (1/8) * 100 = 12.5%

Therefore

2 x $7500 x 12.5% = $1,875 - year 1

for the second year the cost of asset will be$ 7,500 - $1,875 = $5625

2 x $5625 x 12.5% = $1,406.25

Therefore the answer is $1,406