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On January 1, year 1, Paisley Corp. purchases equipment for $200,000. Paisley uses the double-declining-balance method of depreciation. The asset has a 10-year service life and a $10,000 residual value. What is the book value at the end of year 1?

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jepessoa

Answer:

$160,000

Explanation:

To calculate the depreciation value using the double declining balance method we should only consider the purchase cost of the equipment and not the salvage value.

$200,000 / 10 years = $20,000 per year

Since we use the double declining balance method the depreciation for year 1 will be $20,000 x 2 = $40,000

So the book value at the end of year 1 will be $160,000 (= $200,000 - $40,000).

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