Question

On October 1, 2017, Carla Vista Co. places a new asset into service. The cost of the asset is $130000 with an estimated 10-year life and $20000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2017, balance sheet assuming that Carla Vista Co. uses the double-declining-balance method of depreciation.

Answer 1

Answer:

Book value of asset by December 31, 2017=$123,500

Explanation:

The depreciable cost of the new asset can be expressed as;

depreciable cost=purchase cost-salvage value

where;

purchase cost=$130,000

salvage value=$20,000

replacing;

depreciable cost=130,000-20,000=$110,000

depreciable cost=$110,000

annual depreciation expense=depreciable cost/useful life

annual depreciation expense=110,000/10=$11,000

The depreciation rate=(annual depreciation expense/depreciable cost)×100

depreciation rate=(11,000/110,000)×100=10%

depreciation rate for the first year=10%×2=20%

accumulated depreciation=carrying value×rate×number of years

accumulated depreciation by December 31, 2017

=130,000×20%×(3/12)=$6,500

Book value of asset by December 31, 2017=purchase cost-accumulated depreciation by December 31, 2017

Book value of asset by December 31, 2017=(130,000-6,500)=$123,500