Answer:
The amount of depreciation expense recognized in Year 2= $7,800.
Explanation:
<u>Determine the depreciation base</u>
The depreciation base = Acquisition cost - Residual/Salvage value.
The depreciation base = 49,000 - 5,000
The depreciation base = $44,000.
<u>Determining the depreciation rate</u>
The depreciation rate = depreciation base / Useful life
The depreciation rate = 44,000/10
The depreciation rate = $ 4,400.
<u>To determine depreciation % rate </u>
Depreciation % rate = (The depreciation rate / depreciation base) × 100
Depreciation % rate = (4,400 / 44,000) × 100
Depreciation % rate = 10 %
But since Missouri Co. uses double declining balance method of depreciation, the correct depreciation % rate is 10 × 2 = 20%
<u>Determining the depreciation expense for year 2</u>
Year 2 depreciation expense is computed as follows:
(Acquisition cost - year 1 depreciation expense) × Depreciation % rate
Depreciation expense for year 2 is computed as:
Acquisition cost × Depreciation % rate = 49,000 × 20%
Year 1 depreciation expense = $9,800.
Therefore year 2 depreciation expense = (49,000 - 9,800.) × 20%
Therefore year 2 depreciation expense = $ 7,800.
