Question

A company uses the declining-balance method of calculating depreciation expense. On January 1, the company buys machinery for $750,000 on January 1. The machinery has a salvage value of $100,000 and an estimated service life of 10 years. What is the book value in year 3?

Answer 1

Answer:

$516,000

Step-by-step explanation:

Given:

- Beginning boo value of asset A = $750,000

- The salvage value of the asset B = $100,000

- The estimated life of asset t = 10 years

Find:

What is the book value in year 3?

Solution:

- Under the declining balance method, double declining method depreciation rate (R) is calculated by:

                                  R = 1 / t

                                  R = 1 / 10 = 10%

- The accumulated depreciation for 3 years is as follows:

                                 Depreciation: ( A - B ) * R * 2

                 Year 1:     DDB = ( 750,000 - 100,000 ) * 0.2 = $130,000

                 Year 2:    DDB = ( 620,000 - 100,000)*0.2 = $104,000

- The book value in year 3 is:

                                 $ 620,000 - $104,200 = $516,000