Question

George bought a piece of equipment for $30,000. The equipment has a useful life of 4...

George bought a piece of equipment for $30,000. The equipment has a useful life of 4 years and a salvage value of $2,000 at the end of its useful life. Assume that the annual interest is 9%.

3. Calculate the book value at the end of year 3, using the DDB depreciation method.

a. $2,800

b. $3,250

c. $3,750

d. $4,100

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Homework Answers

Answer #1

Solution-

The correct option is C. $3750

Reason-

Depreciable Base = Purchase Price – Salvage Value

= 30000 - 2000

= $28000

Depreciation Expense = Depreciable Base / Useful Life

= $28000 / 4

= $7000

Straight-line Depreciation Rate = Depreciation Expense / Depreciable Base x 100

= 7000 / 28000 x 100

= 25%

Double-declining Depreciation Rate = Straight-line Depreciation Rate x 2

= 25% x 2

= 50%

1st year Depericiation

$30000 x 50% = $15000

2nd year Depericiation

Book value = $30000 - $15000 = $15000

$15000 x 50% = $7500

3r year Depericiation

Book value = $30000 - $15000 - $7500 = $7500

$7500 x 50% = $3750

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