Lockard Company purchased machinery on January 1, 2014, for $117,600. The machin

ID: 2476160 • Letter: L

Question

Lockard Company purchased machinery on January 1, 2014, for $117,600. The machinery is estimated to have a salvage value of $11,760 after a useful life of 8 years. Collapse question part (a) Incorrect answer. Your answer is incorrect. Try again. Compute 2014 depreciation expense using the double-declining-balance method. Depreciation expense $

(b) Compute 2014 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2014. Depreciation expense $

Explanation / Answer

Computation of Depreciation (Using DDB Method)

DDB Method is used by the companies when they want to quickly depreciate an asset.

The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.

Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.

The formula for double declining balance is:

Annual depreciation = Book value * 100% / life * 2

Calculate the percentage that should be used first.

Percentage = 100% / Life x 2 = 100% / 8 x 2 = 25%

Once the percentage is calculated, it is the same for the rest of the asset’s life.

Year

DDB Depreciation for the period

End of Period

Book Value at Beginning of period

Depreciation Rate

Depreciation Expenses

Accumulated Depreciation

Book Value

$117,600

25%

$29,400

$88,200

Part A ----- 2014 depreciation expense using the double-declining-balance method = $29,400

Part b)

Date of Machinery Purchased = October 1, 2014

Depreciation Expenses is recorded only for 3 months (assuming the year ended December 31)

Depreciation Expenses = $117,600 x 25% x 3/12 = $7,350