Equipment costing $80,000 is being depreciated using double-declining balance method over 5 years. What is the depreciation expense in the first year?
Correct Answer
B) $32,000
Double-declining balance rate = 2 ÷ 5 years = 40%. First year depreciation = $80,000 × 40% = $32,000.
Why This Is the Correct Answer
The double-declining balance method uses twice the straight-line depreciation rate applied to the book value each year. The straight-line rate for 5 years is 20% (100% ÷ 5), so the double-declining rate is 40% (20% × 2). In the first year, this 40% rate is applied to the full original cost of $80,000, resulting in $32,000 depreciation expense.
Why the Other Options Are Wrong
Option A: $16,000
$40,000 would represent 50% of the equipment cost, which is incorrect as the double-declining rate should be 40% (2 ÷ 5 years), not 50%.
Option D: $40,000
$16,000 represents only 20% of the equipment cost, which would be the straight-line depreciation rate, not the double-declining balance rate.
Memory Technique
Remember 'Double = 2x the straight-line rate' - if straight-line is 20%, then double-declining is 40%. Think 'DDB = Double the Declining Balance rate.'
Reference Hint
Look up 'Depreciation Methods' or 'Double-Declining Balance Method' in accounting or business management chapters of your contractor reference manual.
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