Which depreciation method will result in the highest depreciation expense in the first year for a piece of equipment costing $100,000 with a 5-year useful life and $10,000 salvage value?
Correct Answer
C) Double declining balance method
Double declining balance method provides the highest first-year depreciation. Rate = 2/5 = 40%. First year depreciation = $100,000 × 40% = $40,000, compared to straight-line of $18,000 annually.
Why This Is the Correct Answer
Double declining balance method provides the highest first-year depreciation. Rate = 2/5 = 40%. First year depreciation = $100,000 × 40% = $40,000, compared to straight-line of $18,000 annually.
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A contractor's equipment originally cost $80,000 with an estimated useful life of 8 years and a salvage value of $8,000. Using the straight-line depreciation method, what is the annual depreciation expense?