Question

On April 1, Cyclone Co. purchases a trencher for $280,000. The machine is expected to last five years and have a salvage value of $40,000. Compute depreciation expense at December 31 for both the first year and second year assuming the company uses the double-declining-balance method. (Enter all amounts as positive values.)

Answer 1

Answer:

a). First year depreciation expense=purchase cost×rate=$112,000

b). Second year depreciation expense=$67,200

Explanation:

Step 1

Determine the depreciable value as shown

total depreciable value=purchase cost-salvage value

where;

purchase cost=$280,000

salvage value=$40,000

replacing;

total depreciable value=(280,000-40,000)=$240,000

Step 2

Annual depreciable value=total depreciable value/lifespan

where;

total depreciable value=$240,000

lifespan=5 years

replacing;

Annual depreciable value=240,000/5=$48,000

Step 3

Annual depreciation rate=(annual depreciable value/total depreciable value)×100

annual depreciation rate=(48,000/240,000)×100=20%

But since its double declining=20%×2=40%

First year depreciation expense=purchase cost×rate=(280,000×40/100)=$112,000

Second year depreciation expense=(280,000-112,000)×40%=$67,200