Question

On January 1, 2016 Dinwiddie Company purchased a car that cost $45,000. The car had an expected useful life of 6 years and a $10,000 salvage value. Based on this information alone _______.A. The total amount of depreciation expense recognized over the six year useful life will be greater under the double declining balance method than the straight-line method.B. The amount of depreciation expense recognized in 2019 would be greater if Dinwiddie depreciates the car under the straight-line method than if the double declining balance method is used.C. At the end of 2018, the amount in accumulated depreciation account will be less if the double declining balance method is used than it would be if the straight-line method is used.D. None of these statements is true.

Answer 1

Answer:

.B. The amount of depreciation expense recognized in 2019 would be greater if Dinwiddie depreciates the car under the straight-line method than if the double declining balance method is used

Explanation:

The double-declining method recognizes higher depreciation amounts in the first years of an asset 's life. The method applies twice the rate of the straight-line method on a declining book value balances.  In the latter years, the depreciation amount will be less because the book value will have declined considerably.

In this case, a useful life of six years attracts a straight-line depreciation rate of 16.6 % (1/6 x 100). the double-declining method will apply a rate of  33.2 %.

The straight-line method applies a constant rate throughout the use-life of an asset. The book value decreases at a constant rate, unlike in double -declining, where the book value decreases rapidly in the early years of the asset.  2019 will be the fourth year in this case. The fourth-year is in the latter stages of a six-year useful life.