Question

On April 1, Cyclone Co. purchases a trencher for $280,000. The machine is expected to last five years and have a salvage value of $40,000. Compute depreciation expense at December 31 for both the first year and second year assuming the company uses the double-declining-balance method

Answer 1

Answer:First Year  Depreciation= $84,000

Second Year  Deprecation= $78,400

Explanation:

Using Double declining

We have that :

Depreciation value  = Cost - Salvage value

$280,000 - $40,000 =$240,000

Since machine is expected to depreciate for 5 years, Annual depreciation  = 240,000 / 5 years

= $48,000

Annual Depreciation Rate = 48,000 / 240,000 = 20%

Therefore, Double declining  = 20 x 2 = 40%

First Year  Depreciation: from April to December

= 40% x  280,000 x 9/12 months

= $84,000

Second Year  Deprecation:

= 40% x (280,000 - 84,000)

= $78,400