20. The double-declining-balance depreciation method ignores the residual value

Question

20. The double-declining-balance depreciation method ignores the residual value until the depreciation expense takes the book value below the residual value. TRUE FALSE

21. January 1, 2017, Shelley’s Manufacturing purchased a machine for $40,600,000. Shelley’s management expects to use the machine for 34,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $47,000. The machine was used for 4,000 hours in 2017 and 5,400 hours in 2018. Calculate the book value of the machine at the end of 2018 if Shelley’s Manufacturing uses the units-of-production method of depreciation. (Round to two decimal places, and your final answer to nearest dollar.) A) $35,829,040 B) $40,600,000 C) $29,375,272 D) $29,388,244

Explanation / Answer

20. The double-declining-balance depreciation method ignores the residual value until the depreciation expense takes the book value below the residual value.

So answer is True

21) Depreciable cost = 40600000-47000 = 40553000

Depreciation rate = 40553000/34000 = 1192.74

Total depreciation for 2017 and 2018 = 9400*1192.74 = 11211756

Book value at the end of 2018 = 40600000-11211756 = 29388244

So answer is d) $29388244

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