Answer:
The correct answer is a which is $ 6,750
Explanation:
<u>Determine the depreciation base </u>
The depreciation base = Acquisition cost - Residual/Salvage value.
The depreciation base = 36,000 - 4,800.
The depreciation base = $31,200.
<u>Determining the depreciation rate</u>
The depreciation rate = depreciation base / Useful life
The depreciation rate = 31,200/8
The depreciation rate = $ 3,900.
<u>To determine depreciation rate %</u>
Depreciation rate % = (The depreciation rate / depreciation base) × 100
Depreciation rate % = 12.5 %
Since Bagby Co. uses double declining balance depreciation, the correct depreciation rate % is 12.5 × 2= 25%
<u>Determining the depreciation expense for 2017</u>
2017's depreciation expense is computed as:
(Acquisition cost - 2016's depreciation expense) × Depreciation % rate
2016's depreciation expense is computed as:
Acquisition cost × Depreciation % rate = 36,000 × 25%
2016's depreciation expense = $9,000.
Therefore 2017's depreciation expense = (36,000 - 9,000) × 25%
Therefore 2017's depreciation expense = $ 6,750.
