eckman company purchased equipment for $80,000 on january 1,2011 and will use the double declining balance method of depreciation. it is estimated that the equipment will have a 5 year life and a $4,000 salvage value at the end of its useful life. the amount of depreciation expense recognized in the year 2013 will be?
To determine the depreciation expense recognized in the year 2013 using the double declining balance method, you need to follow these steps:
Step 1: Calculate the straight-line depreciation rate.
The straight-line depreciation rate is calculated by dividing 1 by the useful life of the asset. In this case, the equipment has a useful life of 5 years. Therefore, the straight-line depreciation rate would be 1/5 or 0.20 (20%).
Step 2: Determine the double declining balance rate.
The double declining balance rate is twice the straight-line depreciation rate. Therefore, the double declining balance rate would be 2 * 0.20 = 0.40 (40%).
Step 3: Calculate the depreciation expense for each year.
To calculate the depreciation expense for each year, you can multiply the double declining balance rate by the book value of the equipment at the beginning of the year.
For the year 2013, you need to find the book value of the equipment at the beginning of that year. Since the equipment was purchased on January 1, 2011, it would have been subjected to depreciation for two years by the beginning of 2013.
The book value of the equipment at the beginning of 2013 can be calculated by subtracting the accumulated depreciation (depreciation expenses for the first two years) from the initial cost of the equipment.
The accumulated depreciation would be equal to the sum of the depreciation expenses for the first two years:
Year 1 depreciation expense = Initial cost * double declining balance rate = $80,000 * 0.40 = $32,000
Year 2 depreciation expense = (Initial cost - Accumulated depreciation of Year 1) * double declining balance rate = ($80,000 - $32,000) * 0.40 = $19,200
Accumulated depreciation for the first two years = $32,000 + $19,200 = $51,200
Therefore, the book value of the equipment at the beginning of 2013 would be:
Book value at the beginning of 2013 = Initial cost - Accumulated depreciation for the first two years = $80,000 - $51,200 = $28,800
Finally, to calculate the depreciation expense for 2013, you use the double declining balance rate on the book value at the beginning of the year:
Depreciation expense for 2013 = Book value at the beginning of 2013 * double declining balance rate = $28,800 * 0.40 = $11,520
Therefore, the amount of depreciation expense recognized in the year 2013 will be $11,520.