Question

Martin Company purchases a machine at the beginning of the year at a cost of $160,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 4 years with a $13,300 salvage value. The machine’s book value at the end of year 3 is:

Answer 1

Answer:

$6,700.

Explanation:

How to find

Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate

Depreciation Expense = $160,000 × (2 × 25%) = $80,000 (Depreciation Expense, year 1)

Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate

Depreciation Expense = ($160,000 − $80,000) × (2 × 25%) = $40,000 (Depreciation Expense, year 2)

Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate

Depreciation Expense = ($160,000 − $120,000) × (2 × 25%) = $20,000 (Depreciation Expense, year 3) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate

Depreciation Expense = ($160,000 − $140,000) × (2 × 25%) = $10,000, but this would reduce the book value to less than salvage. Therefore, depreciation expense in year 4 is limited to $6,700.

(Book value at the beginning of the year, $20,000, minus the $13,300 salvage.)