Equipment is purchased for $80,000. It has an 8 year useful life and a $39000 residual value. Under the double-declining-balance method, what is the depreciation for year 3?
a. 6,000
b. 48,000
c. 11,250
d. 8436
I answered C. The teacher said it's a. 6,000. I have no idea what I'm doing wrong.
To calculate the depreciation for year 3 using the double-declining-balance method, you need to follow these steps:
1. Determine the depreciable cost, which is the purchase cost minus the residual value. In this case, the depreciable cost is $80,000 - $39,000 = $41,000.
2. Calculate the depreciation rate, which is double the straight-line depreciation rate. The straight-line depreciation rate is found by dividing 100% by the useful life in years. Therefore, the straight-line depreciation rate for this equipment is 100% / 8 years = 12.5%. The double-declining-balance depreciation rate, in turn, would be 2 * 12.5% = 25%.
3. To find the depreciation expense for each year, multiply the depreciable cost by the depreciation rate. For year 1, it would be $41,000 * 25% = $10,250. For year 2, it would be ($41,000 - $10,250) * 25% = $7,438.
4. For year 3, you need to calculate the depreciation for the remaining depreciable cost, which is the depreciable cost minus the accumulated depreciation from previous years. In this case, accumulated depreciation for years 1 and 2 is $10,250 + $7,438 = $17,688. Therefore, the remaining depreciable cost is $41,000 - $17,688 = $23,312.
Finally, you can calculate the depreciation for year 3 by multiplying the remaining depreciable cost by the depreciation rate: $23,312 * 25% = $5,828.
Based on these calculations, it appears that the answer should be closest to $5,828, not $6,000 as option A suggests. However, I suggest double-checking the problem and asking your teacher for clarification to confirm the correct answer.
To calculate the depreciation expense for year 3 using the double-declining-balance method, we need to determine the annual depreciation rate and apply it to the remaining net book value.
First, we need to calculate the annual depreciation rate:
Depreciation rate = (2 / Useful life) = (2 / 8) = 0.25 or 25%
Next, we need to determine the net book value at the beginning of year 3:
Net book value at the beginning of year 3 = Cost - Accumulated depreciation
Cost = $80,000
Accumulated depreciation after year 2 = depreciation expense for year 1 + depreciation expense for year 2
For the double-declining-balance method, the depreciation expense for each year is calculated by multiplying the beginning net book value of the year by the annual depreciation rate.
Depreciation expense for year 1 = Net book value at the beginning of year 1 × Depreciation rate
Depreciation expense for year 2 = (Net book value at the beginning of year 2) × Depreciation rate
Now, let's calculate the accumulated depreciation after year 2:
Depreciation expense for year 1 = (Cost - Residual value) × Depreciation rate = ($80,000 - $39,000) × 0.25 = $10,250
Depreciation expense for year 2 = (Cost - Accumulated depreciation after year 1 - Residual value) × Depreciation rate = ($80,000 - $10,250 - $39,000) × 0.25 = $7,938
Accumulated depreciation after year 2 = Depreciation expense for year 1 + Depreciation expense for year 2 = $10,250 + $7,938 = $18,188
Now, let's calculate the net book value at the beginning of year 3:
Net book value at the beginning of year 3 = Cost - Accumulated depreciation after year 2 = $80,000 - $18,188 = $61,812
Finally, we can calculate the depreciation expense for year 3:
Depreciation expense for year 3 = Net book value at the beginning of year 3 × Depreciation rate = $61,812 × 0.25 = $15,453
Therefore, the correct answer is not one of the options provided. The depreciation for year 3 under the double-declining-balance method is $15,453, not $6,000 as mentioned by your teacher.