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28 May, 09:03

A company uses the declining-balance method of calculating depreciation expense. On January 1, the company buys machinery for $750,000. The machinery has a salvage value of $100,000 and an estimated service life of 10 years. What is the book value in Year 3?

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  1. 28 May, 09:50
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    Book value for the 3rd year = $ 750,000 - $366,000 = $ 384,000

    Explanation:

    Straight line rate = 100 % : Useful Life = 100 : 10 = 10 %

    Double Declining rate = 2 * Straight Line rate = 2 * 10 = 20 %

    Depreciation expense = Double declining balance rate * Beginning period book value

    Depreciation expense for the first year = 20 % $ 750,000 = $ 150,000

    Book value for the first year = $ 750,000 - $ 150,000 = $ 600,000

    Depreciation expense for the 2nd year = 20 % $ 600,000 = $ 120,000

    Book value for the 2nd year = $ 750,000 - $ 270,000 = $ 480,000

    Depreciation expense for the 3rd year = 20 % $ 480,000 = $ 96,000

    Book value for the 3rd year = $ 750,000 - $366,000 = $ 384,000
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