ABC Co. purchased equipment for $72,000 on January 1, 2017. The equipment is expected to have a five-year life and a residual value of $6,000. Using the double-declining balance method, depreciation for 2017 and the book value at December 31, 2017, would be:

Question

Business

Austin Warren

17 January, 11:44

ABC Co. purchased equipment for $72,000 on January 1, 2017. The equipment is expected to have a five-year life and a residual value of $6,000. Using the double-declining balance method, depreciation for 2017 and the book value at December 31, 2017, would be:

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Melvin Baldwin · Answer 1

Depreciation expense for 2017: $26,400

The book value of the equipment at December 31, 2017: $45,600

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 cost of the equipment - Residual value = $72,000 - $6,000 = $66,000

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 2017 = 40% x $66,000 = $26,400

Accumulated depreciation at December 31, 2017 = $26,400

Book value of the equipment at December 31, 2017 = Cost of the equipment - Accumulated depreciation at December 31, 2017 = $72,000 - $26,400 = $45,600