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12 February, 12:33

On January 1, of 20X1, Oriole Corp. purchased equipment for $160,000. The equipment has a useful life of 8 years with no residual value. In Years X1 through X2, Oriole used the double-declining-balance method of depreciation. At the start of 20X3, Oriole changes to the straight-line method of depreciation. What is the book value of the equipment at the end of year 3?

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  1. 12 February, 14:03
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    Net Book Value end of year X3 $ 80,000

    Explanation:

    Computation of depreciation for years X1 through X2.

    Cost of equipment $ 160,000

    Useful Life 8 years

    Depreciation percentage under straight line method 12.5 %

    Depreciation percentage under double declining method 25 %

    Cost of equipment $ 160,000

    Depreciation for Year X1 @ 25 % $ 40,000

    Net Book Value as of end of year X1 $ 120,000

    Depreciation for Year X2 @ 25 % $ 24,000

    Net Book Value as of end of year X2 $ 96,000

    Computation of depreciation cost for year X3

    Depreciation for year X3 is on straight line method

    Depreciable basis $ 96,000

    Remaining useful life 6 years

    Depreciation per year $ 96,000/6 $ 16,000

    Computation of net book value end of year X3

    Net Book Value as of end of year X2 $ 96,000

    Depreciation for year X3 $ 16,000

    Net Book Value end of year X3 $ 80,000
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