Question

Archie Co. purchased a framing machine for $45,000 on January 1, 2021. The machine is expected to have a four- year life, with a residual value of $5,000 at the end of four years. Using the double-declining-balance method, depreciation for 2021 and book value at December 31, 2021, would be:
A. $22,500 and $22,500 respectively.
B. $22,500 and $17,500 respectively.
C. $20,000 and $25,000 respectively.
D. $20,000 and $20,000 respectively.
E. None of the above.

Answer 1

Answer:

Option A is the correct answer as both the depreciation expense and the book value at the end of 2021 is $22500

Explanation:

The double declining balance method is an accelerated form of charging/allocating the depreciation of asset to the income statement as an expense. It charges a higher depreciation expense in the initial years of the asset's life and a lower depreciation expense in the later years.

The formula to calculate the depreciation for the period under this method is,

Depreciation expense = 2 * [(Cost - Accumulated depreciation) / Useful life of the asset]

Depreciation expense 2021 = 2 * [(45000 - 0) / 4]

Depreciation expense 2021 = $22500

Book value = Cost - Accumulated depreciation

Book Value 2021 = 45000 - 22500   = $22500