Eckman Company purchased equipment for $420,000 on January 1, 2016, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 5-year life and a $2,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2018 will be
250800
To determine the amount of depreciation expense recognized in the year 2018 using the double-declining-balance method, we need to know the following:
1. Cost of the equipment: $420,000
2. Estimated useful life of the equipment: 5 years
3. Salvage value at the end of its useful life: $2,000
The double-declining-balance method is an accelerated depreciation method that depreciates the asset by taking a larger percentage of the asset's value in the early years of its life. Here's how to calculate the depreciation expense for each year:
Step 1: Calculate the straight-line depreciation rate.
Straight-line depreciation rate = 1 / Useful life
Straight-line depreciation rate = 1 / 5 years = 0.20 or 20%
Step 2: Calculate the double declining depreciation rate.
Double declining depreciation rate = Straight-line depreciation rate x 2
Double declining depreciation rate = 20% x 2 = 40%
Step 3: Calculate the depreciation expense for each year using the double-declining-balance method.
Depreciation expense = Beginning book value x Double declining depreciation rate
Now, let's calculate the depreciation expense for 2018.
Step 4: Determine the beginning book value for 2018.
Beginning book value = Cost of equipment - Accumulated depreciation
Accumulated depreciation = Depreciation expense for previous years
Calculate the accumulated depreciation up to the end of 2017:
Year 1: Depreciation expense = Beginning book value x Double declining depreciation rate
Year 1: Depreciation expense = $420,000 x 40% = $168,000
Year 2: Depreciation expense = (Beginning book value - Year 1 depreciation) x Double declining depreciation rate
Year 2: Depreciation expense = ($420,000 - $168,000) x 40% = $100,800
Accumulated depreciation at the end of 2017 = Year 1 depreciation + Year 2 depreciation
Accumulated depreciation at the end of 2017 = $168,000 + $100,800 = $268,800
Beginning book value for 2018 = Cost of equipment - Accumulated depreciation at the end of 2017
Beginning book value for 2018 = $420,000 - $268,800 = $151,200
Step 5: Calculate depreciation expense for 2018.
Depreciation expense for 2018 = Beginning book value for 2018 x Double declining depreciation rate
Depreciation expense for 2018 = $151,200 x 40% = $60,480
Therefore, the amount of depreciation expense recognized in the year 2018 will be $60,480.