Question

Jing Company was started on January 1, Year 1 when it issued common stock for $31,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $15,500 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $1,600. The equipment had a five-year useful life and a $6,000 expected salvage value. Using double-declining-balance depreciation, what the amount of depreciation expense and the amount of accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements?

Answer 1

Answer:

$156

Explanation:

equipment cost = $15,500 + $1,600 = $17,100

five year useful life ⇒ double declining depreciation rate = (1 / 5) x 2 = 40%

salvage value = $6,000

• depreciation year 1 = 40% x $17,100 = $6,840, book value = $10,260
• depreciation year 2 = 40% x ($17,100 - $6,840) = $4,104, book value = $6,156
• depreciation year 3 = book value - salvage value = $6,156 - $6,000 = $156

When you use the double declining balance, depreciation expenses ceases when the book value = salvage value.