Your company has just purchased a lathe for $27,750. The lathe has a useful life

Question

Your company has just purchased a lathe for $27,750. The lathe has a useful life of 10 years although it follows a 7 year MACRS depreciation schedule. The lathe has a $12,000 salvage value at the end of its useful life. Determine the amount of depreciation of this asset in year three, when the asset will be sold, using a double declining balance depreciation method. Selected Answer: 0.103 Response Feedback: To find the depreciation amount you will use the declining balance depreciation formulas below

Explanation / Answer

Depreciation factor (d) = 2/n = 2/10 = 0.2

Depreciation in year 3 = dB(1-d)t-1

Depreciation in year 3 = 0.2(27,750)(1-0.2)3-1

Depreciation in year 3 = $3,552

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