Question

Moreno Company purchased equipment for $900,000 on January 1, 2014, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $40,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2016 will be:

Answer 1

Answer:

$60,000

Explanation:

2014:

= (Cost of equipment × 2) ÷ Equipment life

= ($900,000 × 2) ÷ 3

= 600,000

so NBV is 300,000

2015:

= (Cost of equipment × 2) ÷ Equipment life

= ($300,000 × 2) ÷ 3

= 200,000

so NBV is 100,000

2016:

= (Cost of equipment × 2) ÷ Equipment life

= ($100,000 × 2) ÷ 3

= 66,667

but we only depreciate down to salvage value so depreciation expense will be 60,000.

Answer 2

Answer:The answer is $ 482,480.64

Explanation:

To calculate the rate, we use the formula

r = 1 - n√S/C

S = $40,000

C = $900,000

n = 3years

r = 1 - 3√40,000/900,000

r = 1 - 3√0.44444444444

r = 1 - 0.7631

r = 0.2369

r = 0.2369 × 100

r = 23.69

r = 24% Approximately

Year Cost - Salvage value × Rate. Depreciation Accumulated depreciation

1. ( 900,000 - 40,000) × 24% 206,400. 206,400

2. ( 693,600 -40,000) × 24% 156,864 363264

3. (536,736 - 40,000)×24% 119,216.64 482,480.64

Accumulated depreciation is 206,400 +156,864 + 119,216.64 = 482,480.64

Therefore depreciation expenses for the third year will be $482,480.64