Question

Cutter Enterprises purchased equipment for $48,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $3,600.

Using the double-declining balance method, depreciation for 2018 and the book value at December 31, 2018, would be:

A.$17,760 and $26,640 respectively.

B.$19,200 and $28,800 respectively.

C. $19,200 and $25,200 respectively.

D.$17,760 and $30,240 respectively.

Answer 1

Solution:
	Answer is B. $19,200 and $28,800 respectively
Working Notes:
	The double-declining balance method rate
	=(Depreciation as per Straight line method/(cost - residual value)) x 2
	=(($48,000-$3,600)/5)/($48,000-$3,600)) x 2
	=(8,880 /$44,400) x 2
	=0.20 x 2
	=40%
	Depreciation as per double-declining balance method = Cost x double-declining balance rate
		=$48,000 x 40%
		=$19,200
	Book value as per double-declining balance method = Cost - Depreciation as per double-declining balance method
		=$48,000- $19,200
		=$28,800
Please feel free to ask if anything about above solution in comment section of the question.