Question

Fancy Farms purchased equipment on January 1 at a cash cost of $30,000. The estimated life is 10 years and the estimated residual value is $5,000. Assuming the company uses the double-declining balance method of depreciation, the depreciation expense for the second year will be: ______.

Answer 1

Answer:

4,800

Explanation:

$\left[\begin{array}{ccccc}Year&Beginning&Dep-Expense&Acc. \: Dep&Ending\\0&-&-&-&30,000\\1&30,000&6,000&6,000&24,000\\2&24,000&4,800&10,800&19,200\\3&19,200&3,840&14,640&15,360\\\end{array}\right]$

The double declining will be the straight-line rate times two.

straight-line = 1/10

double declining = (1/10) x 2 = 2/10 = 1/5 = 20%

The first year will be:

30,000 x 20% = 6,000 depreciation expense

then we calculatethe book value for the second year

30,000 - 6,000 = 24,000

now we clacualte the depreciation expense for the 2nd year

24,000 x 20% = 4,800

This process is repeat every year until the book value equalt the salvage value at the end of the 10th year.