Answer:
The remaining book value at the end of year 3 is $53,156.25 < Selling price
The Bosses should sell the equipment.
Explanation:
Under the straight-line method, useful life is 8 years, so the asset's annual depreciation will be 12.5% of the Depreciable cost.
Depreciable cost = Total asset cost - salvage value = $126,000-$0 = $126,000
Under the double-declining-balance method the 12.5% straight line rate is doubled to 25% - multiplied times the Depreciable cost's book value at the beginning of the year.
In the first year, depreciation expense = 25% x $126,000 = $31,500
At the beginning of the second year, the Depreciable cost's book value is $126,000-$31,500 = $94,500
Depreciation expense in second year = 25% x $94,500 = $23,625
At the beginning of the year 3, the Depreciable cost's book value is $94,500-$23,625 = $70,875
Depreciation expense in second year = 25% x $70,875 = $17,718.75
Accumulated depreciation at the end of year 3 = $31,500 + $23,625 + $17,718.75 = $72,843.75
The remaining book value at the end of year 3 = Total asset cost - Accumulated depreciation at the end of year 3 = $126,000 - $72,843.75 = $53,156.25 < $60,000 (Selling price)
The Bosses should sell the equipment.
