Question

On January 1, a machine with a useful life of 5 years and a residual value of $376,000 was purchased for $480,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?

Answer 1

The depreciation expense for year 2 under the double-declining-balance method of depreciation is $175,680.

Step-by-step explanation:

The double-declining-balance method of depreciation is an accelerated depreciation method frequently used by businesses. To calculate the depreciation expense for year 2, we need to determine the annual depreciation rate and apply it to the machine's net book value (cost - accumulated depreciation) at the beginning of year 2.

Step 1: Calculate the annual depreciation rate. The formula for the double-declining-balance method is 2 / useful life. In this case, the machine has a useful life of 5 years, so the annual depreciation rate is 2/5 or 0.4 (40%).

Step 2: Calculate the net book value at the beginning of year 2. The net book value at the beginning of year 1 is the original cost minus any accumulated depreciation. Since it's the beginning of year 2, we need to subtract the depreciation expense for year 1. The depreciation expense for year 1 is 0.4 * ($480,000 - $376,000) = $40,800. Therefore, the net book value at the beginning of year 2 is $480,000 - $40,800 = $439,200.

Step 3: Calculate the depreciation expense for year 2. Multiply the net book value at the beginning of year 2 by the annual depreciation rate: $439,200 * 0.4 = $175,680. Therefore, the depreciation expense for year 2 under the double-declining-balance method is $175,680.