ACCTSol70.pdf

# ACCTSol70.pdf - 5 Award 1.00 point Equipment cost \$15,000...

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5. Award: 1.00 point Equipment cost \$15,000 and has a \$1,000 residual value and an expected useful life of four years. What is the depreciation expense in Year 4 using the Double-Declining-Balance Method at the straight-line rate? \$937.50 \$1,000 \$875 \$700 None of the other alternatives are correct The rate is 1/useful life x 2 = ¼ x 2 = 50%. The table below shows the depreciation computations for the four years. Each year the rate is multiplied by the Net Book Value to determine the depreciation expense. The Net Book Value is the Cost less the Accumulated Depreciation. In this case the depreciation charge is equal to the net book value at the end of the year, because the rate is 50%... had the rate been different, these amounts would not be the same. Year Net Book Value Jan 1 Depreciation Net Book Value Dec. 31 1 \$15,000 \$7,500 \$7,500 2 \$7,500 \$3,750 \$3,750 3 \$3,750 \$1,875 \$1,875 4 \$1,875 \$875 \$1,000 For Year 4 the application of the 50% rate would have resulted in depreciation expense of \$937.50 for the year. However, a Net Book Value of \$937.50 is below the residual value of \$1,000. The Depreciation Expense in year 4 can be no more than \$875 … unless the estimate of residual value is revised.

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