Question

Colvin Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset’s depreciation expense in Year 2 will be:

A) 90000

B) 54000

C) 42000

D) 16000

E) 36000

Answer #1

Cost of machinery | $ 100,000 |

Life of machinery | 5 Years |

Number of months used in Year 1 (Oct to Dec) | 3 Months |

Depreciation for year 1 ($100,000/5*2*3/12) | $ 10,000 |

Book value at year 2 beginning ($100,000-$10,000) | $ 90,000 |

Depreciation for year 2 ($90,000/5*2) | $ 36,000 |

Answer is E) 36,000

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