DBQ Company purchased a machine on January 1, Year 1 for \$60,000. The company estimated a five year useful life and \$8,000 residual value. If the company uses the double-declining-balance method for depreciation, what will be the amount of accumulated depreciation on December 31, Year 2?

• A. \$33,280
• B. \$38,400
• C. \$41,600
• D. \$48,000

Answer: (B)

Verified step by step guidance

1. Identify the initial cost of the machine, which is \$60,000, and note the residual value of \$8,000 and the useful life of 5 years.
2. Calculate the straight-line depreciation rate: 100% divided by the useful life of 5 years, which equals 20%.
3. Double the straight-line rate to get the double-declining-balance rate: 20% * 2 = 40%.
4. For Year 1, apply the double-declining-balance rate to the book value at the beginning of the year: \$60,000 * 40% = \$24,000. This is the depreciation expense for Year 1.
5. For Year 2, subtract the Year 1 depreciation from the initial cost to get the new book value: \$60,000 - \$24,000 = \$36,000. Then apply the 40% rate to this new book value: \$36,000 * 40% = \$14,400. Add this to the Year 1 depreciation to find the accumulated depreciation by the end of Year 2.