Mathers Equipment purchased a road grader on January 2nd, 2017, for $165,000. They plan to use the grader for eight years and 19,000 hours (3,000 hours each year in 2017-2019 and 2,000 hours each year in 2020-2024). Mathers hopes to sell the asset for $18,000 at the end of its useful life. Using the double-declining-balance method of depreciation, what amount of depreciation expense will Mathers record on the income statement for the year ended December 31st, 2017?

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Nonicorp1 Nonicorp1 · Answer 1 · 2019-11-22T15:45:54+01:00

Answer:

The amount of depreciation expense Mathers will record on the income statement for the year ended December 31st, 2017 is $41,250.

Explanation:

Determine the depreciable cost.

The depreciable cost = Acquisition cost - Salvage value.

replacing;

The depreciable cost = 165,000 - 18,000.

The depreciable cost = $147,000.

Determine the depreciation rate.

The annual depreciation expenses = Depreciable cost / useful life.

The annual depreciation expenses = 147,000 / 8.

The annual depreciation expenses = $18,375.

The depreciation rate = annual depreciation expenses / Depreciable cost.

The depreciation rate = (18,37 /147,000) × 100

The depreciation rate = 12.5%

Since it's double declining balance method we multiply the rate by 2

= 12.5 × 2 = 25%.

Determine the depreciation expense for the year ended December 31st, 2017.

The depreciation expense = Acquisition cost × rate.

The depreciation expense = 165,000 × 25%.

The depreciation expense = $41,250.