This Question: 1 pt 21 of 4120 complete) ? This Test: 41 pts possible Ironworks

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This Question: 1 pt 21 of 4120 complete) ? This Test: 41 pts possible Ironworks Industries purchased a piece of equipment for $90,000 with an estimated salvage value of $20,000 on January 1.Its estimated life is 5 years. To the nearest dollar, what is the equipment's depreciation using double -declining-balance for year 2? answer to the nearest dollar.) (Round any intermediary calculations to the nearest cent and your tinal O A. $28,000 OB, $14,000 C. S21.600 O D. $36,000 Click to select vour answer pe here to search

Explanation / Answer

The answer is C.

Calculation of depreciation under doube declining balance method:

**Depreciation = Book value at the beginning of the year x Straight-line depreciation rate x 2

**Straight line depreciation rate is nothing but annual depreciation expressed in percentage.

Straight line depreciation rate = [Annual Depreciation under SLM ÷ asset value subject to depreciation]

Annual depreciation under SLM = ($90,000 - $20,000) ÷ 5 years = $14,000

Therefore, Straight line depreciation rate = $14,000 ÷ ($90,000 - $20,000)] = 20%

Year 1

$36,000

($90,000 x 20% x 2)

$54,000

($90,000 - $36,000)

Year 2

$21,600

($54,000 x 20% x 2)

$32,400

($54,000 - $21,600)

Therefore, Depreciation for the yeat 2 = $21,600

***Note - SLM = Straight line method

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Beginning Book value Depreciation Closing book value

Year 1

$90,000

$36,000

($90,000 x 20% x 2)

$54,000

($90,000 - $36,000)

Year 2

$54,000

$21,600

($54,000 x 20% x 2)

$32,400

($54,000 - $21,600)

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