Question

Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine is estimated to have a useful life of 8 years, and a residual value of $4,000. For units-of-production depreciation purposes, the machine is expected to produce 400,000 units. If Compatibility Services uses double-declining-balance depreciation, what is the depreciation expense in 20X4?

A) $ 19,000

B) $ 10,000

C) $15,000

D) $9,500

E) $16,000

Note: Please show math for answer.

Answer 1

Correct answer--------(C) $15,000

Working

Double declining Method
A	Cost	$ 80,000
B	Residual Value	$ 4,000
C=A - B	Depreciable base	$ 76,000
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$ 9,500
F=E/C	SLM Rate	12.50%
G=F x 2	DDB Rate	25.00%

.

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
2003	$ 80,000	25.00%	$ 20,000	$ 20,000	$ 60,000
2004	$ 60,000	25.00%	$ 15,000	$ 35,000	$ 45,000