Question

Equipment purchased at the beginning of the year for $200,000 with a residual value of $20,000 is being depreciated over a 5-year period using the double-declining-balance method. Which of the following statements is correct concerning the financial statements at the end of the year?

a.The equipment account now has a balance of $120,000.

b.The accumulated depreciation account balance is now $80,000.

c.Depreciation expense for the year is $72,000.

d.The book value of the equipment is now $80,000.

Answer 1

Answer)

Calculation of depreciation under double declining balance method:

Depreciation expense = Original cost of Equipment X rate of depreciation under double declining balance method

= $ 200,000 X 40%

= $ 80,000

Since the current year is the first year of purchase of equipment, the accumulated depreciation will be equal to the depreciation expense, i.e. $ 80,000.

Thus the correct option in the given question is (b) the accumulated depreciation account balance is now $ 80,000.

Working Note:

Calculation of rate of depreciation under double declining balance method:

Rate of depreciation = (1/useful Life of the equipment) x 2

=(1/5 years ) x 2

= 40%