Q 9.36: Voltage Industries, a calendar-year company, purchases equipment for $85,000 on January 2nd, 2017. The equipment's expected useful life is five years, and the expected salvage value of the equipment is $5,000. What is the book value of the equipment on December 31st, 2018, if Voltage uses the double-declining-balance method?
$30,600Ignoring the salvage value for the double- declining-balance method, the depreciation percentage per year is calculated by doubling the straight-line rate (100% ÷ 5 years = 20%; 20% × 2 = 40%. For year 1, depreciation expense is $34,000 ($85,000 × 40%). Subtracting the expense from the original cost yields a book value of $51,000 at the beginning of year 2. $51,000 × 40% = $20,400 (year 2 depreciation); subtracting the expense from the year 2 beginning book value ($51,000 - 20,400) results in the book value being $30,600 on December 31st, 2018.