Question

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is:

Answer 1

Depreciation base = Cost of machine - Salvage value = 24000-4000 = $20,000
Yearly depreciation expense = Depreciation cost/ Life = 20,000/5 = $4,000
Straight line rate of depreciation = 4,000/20,000 = 0.2 = 20%
Double-declining-balance method rate = 20*2 = 40% = 0.4

Year 1 depreciation expense = 24000*0.4 = $9,600
Year 2 depreciation expense = (24000-9600)*0.4 = $5,760

Therefore, depreciation expense for year 2 is $5,760

Answer 2

The depreciation expense in the second year is $5,760.

Further Explanation:

Double declining balance method: It is a depreciation method in which the rate that is used to depreciate the asset is twice the rate as it is depreciated in the straight-line method. The depreciation is calculated as

$\text{Double Declining Balance Formula}=2\times\frac{\text{Cost of the asset}}{\text{Useful Life}}$

Calculate the depreciation under the double declining balance method:

Year 1:  

$\begin{aligned}\text{BookValue}&=\ 24,000\\ \text{Depreciation for the first year}&=2\times\frac{\ 24,000}{5}\\&=\ 9,600\end{aligned}$

And

$\begin{aligned}\text{Book value at the end of year1}&=\ 24,000-\text{\ 9,600}\\ &=\ 14,400\end{aligned}$

Year 2:

$\begin{aligned}\text{Bookvalue}&=\ 14,400\\ \text{Depreciation for the second year}&=2\times\frac{\text{\ 14,400}}{5}\\ &=\ 5,760\end{aligned}$

And

$\begin{aligned}\text{Book value at the end of year 2}&=\ 14,400-\ 5,760\\&=\ 8,640\end{aligned}$

Therefore, the depreciation expense in the second year is $5,760.

Learn more:

1. Learn more about the annual depreciation

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2. Learn more about the variable cost

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3. Learn more about the overhead expenses  

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Answer details:

Grade: High School

Subject: Accounts

Chapter: Depreciation

Keywords: Mohr Company purchases a machine, at the beginning of the year at a cost of $24,000, The machine is depreciated,  using the double-declining-balance method, The machine’s useful life is estimated to be 5 years,  with a $4,000 salvage value, Depreciation expense in year 2, straight-line method, of depreciation, expenses, income, method.