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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On July 1, 2018, Mundo Corporation purchased factory equipment for $50,000. Residual value was estimated at $2,000. The equipment will be depreciated over 10 years using the double-declining balance method. Counting the year of acquisition as one-half year, Mundo should record 2019 depredation expense of:

  1. a. $7,680
  2. b. $9,000
  3. c. $9,600
  4. d. $10,000

To determine

Compute the depreciation expense of company M for 2019 using the double declining method.

Explanation

Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method.

Compute the depreciation cost of Company M for 2019 using the double declining method:

Depreciationexpense}=[Aquisition cost of equipmentDepreciation expense for 2018]×Depreciation Rate (1)=($50,000$5,000 (2))×20100=$9,000

Working note (1):

Compute the straight line rate:

Useful life = 10 years

Depreciation rate=

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