Question

Question: In early January 2017, NewTech purchases computer equipment for \(154,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at \)25,000. Prepare a table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation.

Short answer

• The depreciation expense at the end of the first year is $77,000, and the book value is $77,000

• The depreciation expense at the end of the second year is $38,500, and the book value is $38,500
• The depreciation expense at the end of the third year is $13,500, and the book value is $25,000

Step-by-step solution

Double-declining-Balance Method

The declining-balance method refers to a method of deprecation in which the deprecation rate is twice the straight-line rate.

Step 2: Computation of depreciation

Year	Beginning book value	Depreciation rate	Depreciation expense	Book value (At the end)
2017	$154,000	50%	$77,000	$77,000
2018	$77,000	50%	$38,500	$38,500
2019	$38,500	50%	$13,500	$25,000
2020	$25,000	50%	$0	$25,000
			$129,000

Working note:

Calculation of depreciation rate under double-declining method

$\begin{array}{rcl}Double declining balance rate& =& \frac{100\%}{Useful life}\times 2\\ & =& \frac{100\%}{4}\times 2\\ & =& 50\%\end{array}$