Question

Prime, Inc., purchases $100,000 in construction machinery on January 1, Year 1. The useful life is...

Prime, Inc., purchases $100,000 in construction machinery on January 1, Year 1. The useful life is estimated to be 8 years, and the residual value is estimated to be $20,000. If the company uses the double-declining-balance method, the asset will reach its residual value in the ____ year.

Homework Answers

Answer #1

Double declining method

Depreciation rate = 1/8 = 12.5%

Double declining rate = 12.5*2 = 25%

Year 1

Book value = 100,000 - 25%*100,000

= 75,000

Year 2

Book value = 75,000 - 25%*75,000

= 56,250

Year 3

Book value = 56,250 - 25%*56,250

= 42,187.50

Year 4

Book value = 42,187.50 - 25%*42,187.50

= 31,640.625

Year 5

Book value = 32,640.625 - 25%*32,640.625

= 23,730.46

Year 6

Book value = 23,730.46 - 25%*23,730.46

=17,797.85

Therefore the asset will reach it's residual value in the 6th year as per The calculation above.

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