ABC Company purchased a new machine on January 1, Year 1 for \$44,000. The company expects the machine to last ten years. The company thinks it could sell the scrap metal from the machine for \$4,000 at the end of its useful life. If the company uses the double-declining method for depreciation, what will be the net book value of the machine on December 31, Year 2?

• A. \$25,600
• B. \$26,400
• C. \$28,000
• D. \$28,160

Answer: (D)

Verified step by step guidance

1. Determine the initial cost of the machine, which is \$44,000.
2. Calculate the salvage value, which is \$4,000, and note that it will not affect the double-declining balance method directly.
3. Determine the useful life of the machine, which is 10 years.
4. Calculate the double-declining rate: (2 / Useful life) = (2 / 10) = 20%.
5. For Year 1, calculate depreciation: 20% of \$44,000 = \$8,800. Subtract this from the initial cost to get the book value at the end of Year 1: \$44,000 - \$8,800 = \$35,200. For Year 2, calculate depreciation: 20% of \$35,200 = \$7,040. Subtract this from the Year 1 book value to get the book value at the end of Year 2: \$35,200 - \$7,040.