Question

Warren Company plans to depreciate a new building using the double declining-balance depreciation method. The building cost is $820,000. The estimated residual value of the building is $52,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year

Answer 1

The depreciation expense for the second year would be $60,352.

Step-by-step explanation:

Double-declining-balance can be described as a method of depreciation method that depreciates an assets at twice the rate of the straight line depreciation method.

The depreciation expense for the second year can then be calculated as follows:

Straight line depreciation rate = 1 / Number expected useful life = 1 / 25 = 0.04, or 4%

Double-declining depreciation rate = Straight line depreciation rate * 2

= 4% * 2 = 8%

Year 1 depreciation expense = Building cost * Double-declining depreciation rate = $820,000 * 8% = $65,600

Year 2 depreciation expense = (Building cost - Year 1 depreciation expense) * Double-declining depreciation rate = ($820,000 - $65,600) * 8% = $754,400 * 8% = $60,352

Therefore, the depreciation expense for the second year would be $60,352.