Farr Company purchased a new van for floral deliveries on January 1, 2020. The van cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2020?Group of answer choices$22,400$8,400$16,800$11,200
Question
Farr Company purchased a new van for floral deliveries on January 1, 2020. The van cost 14,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for 2020?Group of answer choices8,40011,200
Solution
To calculate the depreciation expense for 2020 using the double-declining-balance method, we need to follow these steps:
Step 1: Determine the straight-line depreciation rate. The straight-line depreciation rate is calculated by dividing 1 by the useful life of the asset. In this case, the useful life of the van is 5 years, so the straight-line depreciation rate is 1/5 or 0.2.
Step 2: Calculate the double-declining-balance depreciation rate. The double-declining-balance depreciation rate is twice the straight-line depreciation rate. Therefore, the double-declining-balance depreciation rate is 2 * 0.2 or 0.4.
Step 3: Calculate the depreciation expense for 2020. To calculate the depreciation expense for 2020, we need to multiply the double-declining-balance depreciation rate by the van's initial cost. The van cost 56,000 or $22,400.
Therefore, the depreciation expense for 2020 is $22,400.
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